Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
“It’s not the news, it’s the reaction to the news.”
Once again this morning the news flow is quite bad. China’s flash PMI continues to slow. European flash PMI’s are at multi year lows. U.S. unemployment claims are nearing 390K a week. Crude oil has no life.
But….
There is a bid under this market now. This type of news a month ago would have wrecked the futures. Instead we see a flat open after a large move the past week. That’s constructive. It makes me think something is going to happen out of Europe in the weeks ahead that actually matters. We’ll see. 10 year bonds in Spain actually are down some to the mid 6%s.
Technically it seems like we are due for a minor pullback at least but other than for air pockets in a very volatile day yesterday it has not yet happened. The highs of the previous 2 days on the S&P 500 are in the low 1360s which again is the 61.8% retrace of the entire correction from April to June. Hence a sensible area to stop/rest. 2900, a very important level on the NASDAQ has been held. If we do not pullback in a material way from here in the next 2-3 days that would be quite telling. We can correct overbought via time OR price. With price something in the mid 1320s to upper 1330s would be “fine” – anything more, and this market breakout could be in more serious trouble.
Outside of the indexes we are seeing some breakouts finally in individual names that are not being rejected 1-2 sessions later. That was the case up to about a week ago. It will be important for these leadership names to continue to hold, even in a modest correction.
So that’s where we are at – the price action doesn’t seem to make much sense in light of the news flow, but in the end price is what matters. I’m rooting for boring today.
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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
