Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Markets rallied sharply first thing this morning before giving it all back. For Fibonacci fans (which I have been using a lot lately) the move from Thursday’s low to this morning’s high was a 38.2% retrace of the drop. Relatively speaking that is a weak bounce in the context of the type of things we have seen in 2013, and more broadly speaking during all the V shaped rallies. The rally has been on light volume (what else is new) after some heavy selling last week on the down days.
Bulls would like to at minimum recapture mid 1570s and then move on to new highs to make this all go away; bears are looking for today’s highs or at worst the 50% retrace to hold to start to show their first signs of getting the upper hand in 2013.
In economic/earnings news Caterpillar had a very weak report/guidance – the stock has been a poor performer all year as it’s very much tied to emerging markets + China which seem in slowdown (copper has been signaling that as well). And housing posted another disappointing data point, in a recent string.
Small caps continue to lead to the downside. In fact the Russell 2000 is now back to late January levels – giving back three months of gains. In many ways this is similar to 2012 when small caps began to weaken in March even as the larger cap indexes continued up on the back of fewer and fewer names – last year it was more of an Apple march.
People continue to hide out in large cap biotechs, utilities, and the like. However 80% of stocks tend to move with the general market so until a clear path is built it is difficult to trust much in this market right now. Further, large cap biotech is among one of the more “crowded” trades I can recall in recent memory based on what I see in the financial blogosphere, and twitter. As the current market “generals” it will be interesting to see their behavior in the near term, especially if the correction accelerates.
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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
