Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
We are now a full 3 months into this correction. The months of April and June have been very similar with whippy action in both directions and no memory from day to day: 2 days up, 3 days down, 1 day up, 1 day down, 4 days up, 3 days down and with intense volatility. May of course was more of the heavier one directional selling.
While repetitive one is very beholden to the market action here. Other than a few names (needles in haystack) which have been able to hold up, the majority of stocks are simply flowing with the market in whatever direction. In those environments, stock picking goes out the window. That goes for short selling and going long. We saw periods much like this in 2010 and 2011. On top of it, we gap sharply most days up or down due to whatever the headline is out of Europe.
I continue to spy that gap in the errr, SPY down at 129.26 created between June 5/6. That would be the low 1290s on the S&P 500. To get there 1303 on the S&P 500 needs to break, which would be the Fibonacci 61.8% retrace of the June rally. Traditionally if a 61.8% retrace breaks, that move continues. Of course just days ago we were at the 61.8% retrace of the entire Apr-Jun correction up there in the low 1360s – showing how quickly the conversation changes in this binary market.
For trend traders, just about every breakout that was “working” a week ago failed utterly during these 2 distribution days. So again to my point about stock picking – even when you find what’s winning, the trend is not lasting in most cases.
Oil, the dollar, and bonds continue to not work in favor of the market. We’ve seen 2 huge days of distribution in the past 3, and capital preservation remains key. If you are not taking 10-15% losses during these corrections there is far less to make up when things get more sunny down the road.
Usually a summit like the Europeans are having this end of week would lead to front running rallies and lots of rumors and joy. But I think people are just as fatigued of these summits as nothing substantial gets done other than sometimes kicking a can. So at this point people are fatigued of the debt situation AND fatigued of the solutions to the debt situation.
If you are an IBD fan, they went back to “market in correction” after yesterday’s distribution day, so the “FTD” day is officially kaput.
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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
