Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Last week was the first in many moons the focus was off the Federal Reserve and what any member of that institution was thinking, eating, or sensing. Unfortunately, it was only a one week break…. we are back to the obsession this week. Most don’t expect any change to the FOMC statement this week as any major changes are now expected during the 4 meetings a year when there is a news conferences so the one in September (and December) are going to be more anticipated. That said, we all know moving one comma from sentence 7 to 11 can cause algos to go wild so Wednesday is always a “fun” day.
As for earnings we have a good batch of S&P 500 earnings out of the way and the story remains the same – very meager results for revenue, and earnings usually beating recently lowered bars. This has been the story for a few quarters now and the indexes continue to steam upward as “multiple expansion” has taken over from “earnings growth” as the primary market driver. After a few weeks of quiet on the economic front some of the key reports show up again ADP employment (Wednesday), first pass at Q2 GDP estimated at a meager 1.1% (Wednesday), ISM Manufacturing w/ a big increase to 53.1 expected (Thursday), and the employment reports Friday; these are expected to show +175K jobs and a 7.5% unemployment rate.
As for our indexes we have been in a correction mostly via time rather than price over the past 11 sessions. While individual names are correction moderately, the rotation theme continues – when A, B, C, groups correct money flows into D, E, F groups for a day or two and then vice versa. So the indexes stay mostly up while sectors are correcting. With the S&P 500 chart we remain over the primary trend line of the year, connecting the major lows (orange line) and in a mini bull flag formed the past 3 days. Of course any day we don’t make a new high the calls for a “head and shoulders” top ring out but it will take a lot from here to create such a situation. There are some other negative divergences one could point out in terms of the July high versus the May high but these things don’t seem to matter much in a QE market so we won’t bother right now. Lately we have been seeing a lot of down opens and then weakness in the AM followed by rallies mid day or late, different than the constant gap ups and then go nowhere action seen in late June thru mid July.
As for sectors last week it was all about healthcare and technology; the latter is a bit misleading because a week ago Friday technology had a very bad day (Microsoft earnings) so on a week over week basis technology did ok mostly due to that anomaly. But it clearly shows even as the indexes corrected there weren”t many areas to find gains in terms of sector strength.
Even more strange here is the past month worth of data – you can see 4 of the 9 sectors down, and 2 others barely up….but the indexes up decently.
This is what a typical strong(er) sector chart looks like now – this mini correction has helped pushed the ETFs down to/near their 10 day moving average and worked off near term overbought conditions – 2 examples:
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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/index.php/the-fund/holdings
