Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
After the correction of mid May through latter June, bulls pulled off another V shaped push up – however it was not until early July when we saw the S&P 500 regaining the main trend line of 2013 (that which connected most of the major lows) – in orange below. Near that was also a time the MACD indicator had a bullish crossover (when the shorter duration line crossed over the longer duration). So at that point things were back into a ‘safe zone’ – but of course by then 80% of the initial move up was over and within a week the indexes went into a 3 week period of consolidation and correction. While individual names pulled back moderately during these 3 weeks a constant rotation from one sector to another under the surface kept the indexes from falling that much. So it was a correction via time rather than price at the index level at least. This 3 week consolidation looked to end last Wednesday followed the FOMC statement but a nasty last hour selloff erased all the day’s gains and caused a failed breakout attempt on the chart. This also pushed the MACD into a bearish crossover (barely). But in typical headfake fashion Thursday morning we had a large gap up on the first day of the month on the global PMI numbers and a good U.S. ISM Manufacturing report and a new leg up now seems to be born.
The market seems to be absorbing higher 10 year yields although that market is very volatile – Thursday yields skyrocketed up well over 2.7% but then Friday, simply due to a “meh” employment report, they plummeted back to the 2.6% area. While that doesn’t seem like a big move to equity players – it is 3-5% of change a day. Bigger picture there was a multi year breakout over the 2.4% area, mid June – which at first caused issues for the market, but now is being accepted. Most players have quantitative easing being reduced at either the September or December meetings…so that Bernanke sets the precedent before he departs.
Supporting the idea that this looks like a new leg up, was healthy action in the “right sectors” last week – the groups on the far left that showed the best movement were in the cyclical parts of the market. (as always “cyclicals” is mislabeled – it is consumer discretionary) It would be nice to see more sectors up however – but it was a very choppy week.
With the bulk of S&P 500 type company earnings behind us, we’ll be moving to the smaller fare in the next week or two – volume should remain low in the markets as many players are on vacation and the news flow should slow in a relative sense. Today at 10 AM is ISM non manufacturing – consensus is for 53 versus 52.2 last month. The rest of the week really does not have an impactful type of economic report. Expect market players to have their ears to the ground for Fed official talk as the main game now is guessing when QE might be reduced.
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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
