Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Yesterday was the worst session of the year…. for many reasons.
In stock terms the S&P 500 had its worst session of the entire rally from mid November in terms of breadth. It was a total decimation yesterday – no place to hide.
And where did the S&P 500 end up? No shocker – on that uptrend line we had just seen hit two weeks ago, and now hit for the fifth time since the November bottom. True to form we are getting the sharp knee jerk bounce off it this morning. Please note the volume spikes on the selloffs lately. Volume has not mattered much since the Fed entered markets so aggressively in 2009 but traditionally when you get huge volume spikes on selloffs and rallies on low volume it is a bad sign.
That is the ‘bright side’ – things are not so well in the commodity markets and with small caps with the Russell 2000 making its first lower low of the rally.
Further while the S&P 500 and DJIA continued to make new highs late last week we did not see it in a lot of major sectors which had led this market up – some examples, housing and transports. Hence all these are potential “head and shoulder” tops on any rebound. Did we not just say this two weeks ago right before yet another “V shape” move in the market. Yes. But eventually all these divergences and breakdowns are going to matter.
The damage yesterday to individual charts was immense – granted the same thing could have been said about 8 sessions ago but each time markets flash down less charts hold up. That doesn’t mean oversold bounces can’t happen but this market now has a lot of work to do to heal – there is more to the market degradation than is being seen at the S&P 500 and DJIA.
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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
