Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Bears have been hammered over their heads constantly during periods of QE with the infamous “V shaped” rallies; that is a turn on a time out of a downturn and rocket ship rally with no relent. It is not normal in the context of how things worked pre-2009 when V shaped rallies were the exception not the rule. So at this point one has to almost expect that is what will happen, and when it does not it is the shock – not vice versa. It does appear this will be one of those rare times it does not happen. Futures are down sharply this morning, and most are pinning it on the continued massive volatility out of Japan’s stock market and currency. The yen has had daily moves of 2-3% the past 4 sessions which again in the context of stocks would be as if a staid big cap began moving 20%+ a day. It is up nearly 2% this morning as the Bank of Japan announced nothing new – not sure what people expected them to say, but that is the excuse.
Within the context of the S&P 500 this descending channel looks like it will hold firm. The gap up in May off the jobs report lasted an entire month before it filled; the one from last Friday looks like it will last all of 3 sessions. If nothing else we definitely have a change in behavior as the complacent “it must go up due to QE” trade becomes less easy. If the selling continues past today’s session, all eyes will go that 1597 level that held mid day Thursday and marked the launch pad of this last leg of the rally in early May.
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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
