Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Yesterday was quite the interesting session – immense volatility. This is usual around a Fed day but a severe last hour selloff – immediately after a big rally was frustrating for many. This is especially true since technical oriented investors were looking for a breakout of this now 3 week range in the major indexes; that finally looked to be happening at 3 PM as the S&P 500 approached 1700 and the NASDAQ broke out to a new decade long high. Then a flurry of selling hit, negating the breakouts on both charts.
Of course, right on schedule after that type of action, we have a major gap up to begin the new month. At least there is a reason this time around as better than expected PMI data from China and Europe is helping. We’ve seen this sort of “strange” technical action (bad behavior immediately followed by a breakout) throughout the QE era without any news, so at least today we can say it is somewhat logical. This 1700 level is one of those big round psychological numbers so we’ll see if this gap holds today after the ISM Manufacturing data at 10 AM. If so then consider this a 3 week correction via time (although many individual stocks corrected to a good degree).
One fly in the ointment – you will notice the official govt PMI rose over 50 in China (which caters to large companies) but the PMI as measured by HSBC (which caters to medium and smaller companies) fell. Wikileaks anyone?
- Official Chinese manufacturing PMI climbed to 50.3 in July. This beat expectations for a decline to 49.8, from 50.1 the previous month. The HSBC PMI, compiled by Markit, fell to 47.7 in July, the weakest reading since August 2012, from 48.2 in June.
- Markit’s UK manufacturing PMI jumped to 54.6 in July from 52.9 in June, trumping even the most optimistic forecast in a Reuters poll of economists and triggering a rise in sterling. Readings above 50 signify growth.
- Markit’s Eurozone manufacturing PMI signaled marginal growth among factories for the first time in two years, also rising to 50.3 in July from 48.8. “Manufacturing output rose again in Germany, Italy, the Netherlands and Ireland during July, while there were welcome returns to growth for France and Austria,” said Rob Dobson, senior economist at PMI compiler Markit.
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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
