Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Quite a week of action following the reversal candles posted a week ago Friday. As always the attitude of market participants can switch on a dime and while 10 days ago the worries were “Europe, China, and fiscal cliff” the commentary now is “Europe cordoned off, China rebounding, and fiscal cliff solved soon enough.” Amazing what 50 S&P points will do for psychology.
Despite this big run last week the S&P 500 has yet to make a new higher high, that will come about 25 points above Friday’s closing print on the S&P 500; that is about a 1.9% run from Friday’s close. With that said, the violent moves up and down are USUALLY not a sign of health. I say USUALLY because we saw a similar situation in June/July and despite some incredibly violent action it led to a rally in August-September. Of course there were major mitigating circumstances including Draghi’s “whatever it takes” pledge at end of July and anticipation of Bernanke’s QEInfinity move. But healthy markets are generally calm(er), not acting in the current manner.
In the short run, whatever the eventual outcome, some consolidation/pullback would be a healthy move to digest the quick run. The NYSE Oscillator went from -90 to +50 in a week, one of the biggest transitions I can remember in such a short amount of time. There were similar situations in February 2010 and March 2011 but it’s not common. What happens after any digestion will be a good tell for the intermediate term ahead.
In economic data a series of Fed regional surveys will be released, as will durable goods Tuesday morning. New home sales and the Fed beige book Wednesday and Chicago PMI Friday, before we head to a more data dependent week in the first week of December. Remember, Sandy hangs over all this data so I expect technicals to continue to dominate along with headlines in Europe and the U.S.
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