Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Even in a downtrend since late March, the market is not making it easy for those awaiting this pullback. Selling bouts are met with oversold bounces quite quickly, and the action is not consistent in one direction for that many days in a row. The S&P is back above the key 1370 level this morning, after breaking the key 1370 level yesterday. And since it’s key that is leading to a lot of choppiness. But bigger picture we continue to see a market under distribution, and what appears to be a ‘head and shoulders’ formation being created on the senior indexes. If you are unfamiliar with the term, please google it.
Yesterday I mentioned we had two key points of support – that was last week’s lows of 1365 and the previous week’s lows of 1357. Both came into play yesterday as the market ultimately bounced just above the latter level and finished just above the former level. If 1357 were to break, the next key level is 1340. But for now, as noted – the buyers keep pushing the market back above 1370 on each dip. However each rally is on light volume, while each selling bout is on heavy – hence all the distribution days.
I’d also point out that we are having a sector rotation under the surface even as the major indexes are down less than 5%. Just about the entire momentum growth stock universe is taking turns getting hit. And some of it is very random – take Ulta Salon (ULTA) today. I cannot find any news, so unless something pops up later today I have to assume some big boys are liquidating as volume is huge. But this is exactly the type of action that can rip away a lot of your money as you search for ‘relative strength’ – pile in, waiting for a bounce day like today, only to be punched in the face.
Today we popped a bit in the broader market on some housing data but in the big picture that data remains quite weak… I think it was more of an excuse to simply get an oversold bounce going. Yesterday’s gap (137.87) has not yet been filled but we saw the gap down post Good Friday took about a week and a half to be filled and then some chop, and then back down. So no one should be surprised to see a run to fill this gap later today or tomorrow morning (with Apple’s blessing). At this point with a long series of distribution days in the market we need to see a true change of character to feel like these moves up are anything but head fakes and frustrating moments for the bears.
Obviously key events are Apple earnings tonight and FOMC Meeting and Bernanke quarterly update Thursday. But Europe has not gone away, even though the market some days act like it after their markets close. I don’t think the path is much different than it has been repeatedly the past few years – things will downgrade, people will sit on their hands, people will panic as the situation worsens, and then Germany or the central bank will step in to kick the can. Markets will surge on the kick the can for however long that can stays in the air. We’ll rinse, wash, and repeat – until we do it again. It’s Groundhog Day as their system is broken due to lack of autonomy for each country or the ability to print their way out of messes ala UK, Japan, USA.
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Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
