Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Anyone betting against this market based on historically worthwhile divergences continues to be left in the dust. Right now the Japanese and U.S. markets are in their own central bank cocoon and nothing really matters. It is actually very remarkable to watch. Last week we saw a litany of economic data that disappointed – both ISMs and the employment report (not to mention a spike in weekly unemployment claims) but since Friday at 9:31 AM the market has gone nearly straight up. This has been the pattern since 2009 on rallies – they tend to be V shape, not stair step. Yesterday as the Federal Reserve was forced to release its minutes early since it had leaked them to “the important people” early (in error), investors saw what they wanted and that is QEn from here to a very long time for now. After a gap up, we saw a clearing in the S&P 500 of all time intraday highs and once that happens gains accelerated immediately til early afternoon. We now have a very clear line in the sand for the intermediate term for support – this light blue line connecting all the major lows. Each touch of it has led to a significant bounce – it is the one to watch go forward.
As for the upside other than the “mother of all inverse head and shoulders” – which measures to 1605-1607, you are in uncharted territory for the S&P 500 as there is no longer old congestion to work through. Things are a tad overbought now in the near term but some sideways and back and fill in the next few days should make bulls content.
Much like February the past few weeks has been characterized by a slew of divergences – fewer stocks carrying the indexes up, those stocks being in the safety sectors, weaker breadth on each new high, etc etc. The late March/early April episode was actually worse than the February episode from this set of eyes as small caps were still leading in February versus the past month, and bonds had exploded much more in this recent episode versus February (which would indicate slowing growth ahead). BUT… it simply has not mattered. Until it does, all analysis has become moot.
Now we have had some nice improvements in some of those divergences the past few sessions – small caps have led the charge the past few sessions although have not reached previous highs like large caps. But they have been strong. Further, we have seen a return of some strength to more cyclical sectors – the most exciting of which if it continues would be technology which has been asleep. You’ve seen huge moves in old school technology stocks like Intel and Microsoft (although the latter is down big this morning on a downgrade) as people search for yield in a world lacking it due to central banker actions. It would be nice to see a return of transports, semiconductors, energy et al as the pure leadership but at least some of these are leading in the near term.
There is simply not much more to say – liquidity apparently trumps everything. Yesterday the lead story on CNNMoney was that PC sales had suffered their worst quarterly sales drop in history – just as Intel and Microsoft had monster 2-3 day moves. So we are in the central bank liquidity twilight zone where fundamental news doesn’t seem to matter much. While I do expect earnings reports to still affect individual stocks for more than 4 hrs, until bears can make some headway against this tsunami of central banker action it has been a fruitless expedition for them. To repeat, most world markets have struggled this year so these comments I make don’t apply everywhere – but for Japan and USA we are just living in a parallel universe.
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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
