Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
While all the talk in the financial media is about the Dow’s quest to hit all time highs, most people who deal with the market day in and day out don’t really focus on that index much – it’s narrow and strangely composed in a price weight manner versus market cap. The past two weeks we’ve seen some weakening in the market internals – a litany of divergences have emerged BUT the as we sit here this morning the S&P 500 closed right at the top of its multi week range near 1525 and is poised to gap up to test the 1531 level that marked the highs in mid February. Divergences be damned.
A close over this 1531 level would obviously put the bearish “head and shoulders” top idea (orange shade) out of the picture, and instead lead to conjecture about a mini bullish “inverse head and shoulders” formation created over the past two weeks. With a low (head) of 1485ish, and a neckline at this 1525ish (40 point range) area one could propose an upside target 1525+40 = 1565. That would take the index within sniffing range of the fall 2007 highs in the mid 1570s.
With that said, we have a strange cocktail of leadership now with consumer staples, utilities, and healthcare taking the baton from the more typical cyclical groups which led in January and thru the peak in mid February. This is why the indexes have been able to hold up even as many of the more typical bull market leadership groups have fallen off.
Further we see poor behavior in the commodity sectors that mark economic activity – oil and copper are two.
So long story short, if we have a new breakout here it’s going to be from a backdrop of safety sectors leading, with economically sensitive commodities lagging. Normally this combination is what you look for in a market set to roll over – not vice versa. Let’s just say this is boggling “unique”. But we’ve seen just about everything the past 6 years so why not this.
We have ISM Non manufacturing this morning so we should know if that is going to be the catalyst for the break to new highs rather early in the day.
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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
