Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
This should be one of the more interesting weeks in a while as major market indexes are probing some very important levels. We’ll begin with the technicals today.
As noted last week none of the major indexes made a higher high on that face ripping rally to begin the week; and by the end of the week the gap up last Monday was obviously filled on all the charts. The S&P 500 (and DJIA) are the strongest charts as some rotation into financials, and defensive sectors have helped keep them relatively strong. That said the S&P 500 has been traveling along an ascending channel all summer, from which it bounced a week ago and where it ended Friday. Other than two days in late July it has not violated the lower end of the channel.
The NASDAQ is a big mess, having completed a head and shoulders breakdown Friday. Of course Apple reports later this week and the future of the index will go with Apple. I can’t recall a recent time Apple was quite this weak going into an earnings report.
The Russell 2000 has not been quite as weak as NASDAQ but certainly not a leadership index. While it has not traveled in an easy to identify channel all summer as the S&P 500 has, one can see it also is testing a long term support line from early June.
Away from the indexes the issue is the lack of leadership outside of a few sectors. And as we all know by the time a real correction is over there will be no hiding spots as those hiding spaces eventually get exploited. So areas such as housing and financials (and believe it or not coal of late) could eventually sour. As an example, biotech which has been a hiding place for most of 2012 had an awful Friday.
Further, most charts are looking quite shabby out there. Breakouts are rarely holding, and while there are oversold bounces (sometimes violent as early last week) they just lead to further selling. So this type of distribution needs to reverse.
In economic news it is relatively light with flash PMI’s to be released Wednesday globally, new home sales Wednesday morning, durable goods Thursday, and the first pass for Q3 GDP Friday. There is a FOMC meeting Tue/Wed but very few expect anything new after the bazooka of QEinfinity was unleashed at the last meeting. That said, as Operation Twist moves to completion at the end of the year expect discussion of the Fed replacing it with a bigger QEinfinity.
Earnings will continue to dominate the day to day this week with a batch of high profile names – this morning Caterpillar already disappointed continuing the same theme we’ve seen the past few weeks of global multinationals not able to continue the Wall Street game of underpromise and overdeliver. While earnings can be gamed, revenue cannot and we are seeing a huge proportion of revenue misses thus far this earnings season.
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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
