Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
While it is not obvious on the chart on Monday April 15th the market gapped down, creating a hole between the close Friday the 12th and the open Monday the 15th. The reason we cannot see it on the chart is because the low of the 12th was below the high of the 15th but it is there just over 1587 or 158.65 in SPY ETF terms. With the gap up this morning it appears the S&P 500 will make an effort to make the full round trip in just under 2 weeks.
At this point some of the more bearish outcomes seem less likely as this powerful move has recaptured a substantial portion of the selloff and pushed the S&P 500 back into the channel it had been traveling since mid November. While that seemed to be a low probability outcome last week, these V shaped bounces are relentless under QE. The next step for bulls is to retest old highs and then push through them; the next step for bears appears to return to fetal position.
Yesterday was also a very interesting day in terms of sector rotation – we finally saw a break in most of the leading groups and rather than leading to a selloff, money simply went into beaten down cyclical groups. That is an impressive situation and why the indexes held in flat. Longer term it would be nice if those more cyclical groups actually became leadership rather than the defensive areas but whatever the case you have to tip your hat at the inability for this market to selloff in any meaningful fashion.
Speaking of QE – yesterday I wrote
On that note, as the economy slows yet again this spring I am going to be the first to put out the “black swan” of expanded QE sometime this fall. I might be early because if Bernanke leaves in early 2014 he might not want to make yet another move, but if Yellen takes over it’s almost a no brainer. Now that Japan has done a program 3x the size of the Fed (relative to their economy), the equivalent in the U.S. would be about $250B a month. So a push upward over 100B a month from the current 85B would now have cover. Of course the consensus is “tapering” down will begin sometime next winter but if this economy remains in stall speed of 1-2% why not expand.
Lo and behold – this morning we have a headline from Bloomberg: Fed Debate Moves from Tapering to Extending. Bingo.
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