Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
After breaking a key support trend line that connected the lows of November, December, February and April the S&P 500 has pulled off yet another “V shaped” upward move similar to so many others since 2009. The index finished at new closing highs yesterday and is now up 7 of 8 sessions as we enter an economic and central bank heavy portion of the calendar. The fact it has done this on the back of a slew of poor economic data the world over is even more head scratching impressive. At this point nothing other than global central banker liquidity seems to matter.
We do have an encouraging thing happening under the surface. One of the main “divergences” (that in the end did not matter since price ALWAYS has resolved upward in 2013) of the past few months has been the strength in defensive sectors and the general shunning of pro-cyclical sectors. While one or two “growth” sectors has been in play (i.e. biotechnology of late) it’s generally been a market of utilities, consumer staples, and “broad healthcare exclusive of biotech” – the defensives.
This can be seen in the chart of 3 month performance of major sectors.
[please note the far left column is incorrectly labeled by stockcharts.com as “cyclicals” – this is actually the XLY ETF, which is consumer discretionary – i.e. retail.]
Now let us compare to the 1 week performance – completely opposite leadership
As you can see more of the “right” sectors are leading the market in this latest rebound off the April “correction”. Now the fact it is happening off the back of a lot of bad data seems strange but it is what is happening whatever the logic. It could be something as simple as a reversion to mean trade – i.e. as the market has exhausted itself to a degree on the same old safety sectors, all this liquidity will go to the beaten down sectors “for a trade”. Or as happens almost every turn of the year the past few years, it’s money anticipating a cyclical upturn. Whatever the reason it is what is happening, and if it continues would have technicians far more comfortable with the broader price action.
Also I’d note completely out of the scope of this sector analysis we have seen a move into the emerging market countries – which have been lost for most of the year.
Yesterday we saw the largest bond offering ever with Apple – it was massively oversubscribed globally. Don’t you think all that Japanese money unleashed into the world which apparently is now gorging on Italian and Spanish debt would love ANY yield that Apple provides?
To finish off this week we have ADP employment, ISM Manufacturing today – along with the Fed announcement. Tomorrow a widely expected interest rate cut is supposed to be headed our way out of the European Central Bank, and Friday we have ISM Non Manufacturing and monthly employment data. Does any of it matter anymore for more than a few hours of knee jerk reaction under the flood of global liquidity? Doesn’t seem so.
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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
