Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
As stated late last week this FOMC meeting will actually be one to watch as the now month long correction has been all about a potential dissipation of quantitative easing. With employment nowhere near target and an argument that not only is inflation tame but disinflation is a potential issue (at least by government statistics) it really doesn’t seem like ‘tapering’ is coming soon. But that is all the market has focused on (along with the yen/Nikkei) for 4 weeks now.
Volatility has picked up substantially the past few weeks and we are now getting daily gap ups and downs of significant size – the action is random and the market has no memory from day to day. The S&P 500 remains in this corrective descending channel as do most of the major leading sectors. This is a series of lower highs but as of late last week a potential higher low (on the S&P 500) as well. If they can break out to the upside of these channels it will be a bullish pattern – assuming it holds. Seeing this MACD crossover in a bullish manner (black over red) would also be a benefit.
Leading sector ETFs:
One area to point out is oil which may have finally broke out of a nearly half year pattern of lower highs Friday; one to keep an eye on.
Last week was a reversion to mean sort of week for sectors – the most beaten down groups in the ‘safety’ sectors got a bid. Many of these groups – especially utilities and consumer staples (offering large dividends) took a big hit post May 22nd when the QE reduction was thrown out by Bernanke in a Q&A during Congressional testimony. Many of these took off especially sharply late in the week after Hilsenrath’s WSJ dovish article.
We have a large gap up open this morning for reasons that don’t seem apparent other than the Nikkei is up – but people chasing these moves have been punished the past month, unlike previous portions of 2013. This gap will take indexes back to the top of the channel shown above – let’s see if bulls front run Bernanke and push up and over.
Economic data is light, mostly housing related and flash purchasing manager indexes from across the globe Thursday. But Bernanke will remain the main focus of most. The big question is did the market get ahead of itself in pricing some form of tightening – however minor – and will Bernanke whisper softly that it will all be ok again and hold market participants close to his bosom once more.
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