Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Despite the “risk on” feel the normal “risk on” markets are not doing much – you want to see NASDAQ leading the major indexes, but it is the laggard. Oil is reversing back down and utilities of all sectors are among the leaders.
I mentioned a move to the 1320s yesterday and as usual the past few years these targets get hit MUCH quicker than anticipated; I believe I wrote that mid morning around 1305-1307. So essentially the market is back to where it was a week ago Wednesday with an incredible amount of volatility. A lot of catalysts HAVE been used up – everyone knows Janet Yellen wants to QE for another few decades, and Ben – while coy today – seems likely to fall in line. There have been enough ‘reports’ to signal Germany will come to the rescue of Spanish banks. And China has indicated it will begin some form of stimulus. Now this market has been known to rally on the same news many times – I remember sometime last year we rallied on almost the exact same Greek news about 4x in a three week period. So can we rally on the rumor of additional easing, and then the actual easing? Sure. Can we rally on the reports of EU injection of funds into Spanish banks, and then the actual injection? Sure. But these aren’t surprises anymore in the normal sense.
Most of the catalysts are now out of the way until the Greek election/FOMC meeting so the market should become less “gap-py” barring another rescue announcement in the dead of the night but with the ECB just talking yesterday and the Fed meeting in a week and a half it seems unlikely it will come from a central bank. Again NONE of this has to do with the bedrock of corporate earnings, or fundamentals – which is a shame, but this is the market we live in nowadays. When almost all stocks move in unison you really are making guestimates on when the intervention comes and that’s the base case for investment. I was writing often last week even as the market sold off, it’s not easy for bears because we can have rumors or interventions at any moment – this week shows exactly why I said that.
Technically we have come a long way from the lows Monday just as we fell a long way last week. While we are off the lows in the major indexes we’re not in the clear yet. As I wrote yesterday morning the best case for bulls would be a digestion of this move without giving too much of it back – i.e. a move that stays above 1300 and then some sideways action from which the market advances from. Of course, there is always the possibility of the “V shaped” move up which used to be rare, but has been the rule rather than the exception since 2009 as it usually comes in the form of intervention. The last option is a rollover and move to test recent lows or break them. All are still on the table as all that has happened this week is overconfident bears had their fur singed. If we can see some base building in the indexes within say a 20-35 point range – perhaps 1305-1340 area, we also want to see some leadership emerge in individual names. Right now the individual charts are a mess with a lot of damage done the past 2 months, and now some spikes from the action this week. But one has to respect that is how it looked back in December 2011 before a big move.
The dollar and bonds have come back to somewhat meaningful support after being very overextended – if one wants to build a bull case these 2 asset classes would need to continue to break down while oil shows more life than a dead cat bounce. While all we’ve been talking about is intervention, intervention, intervention this week there is still the small case of a global slowdown with 1 continent in recession, emerging markets slowing sharply, and the U.S. in its multi year “meh” economy. This is not a good base case for corporate profits which are back end loaded big time this year (Q3/Q4). So eventually if Greece, Spain, banking union, FDIC like insurance, et al get cleared up we still have the issue of the global economy….
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