Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Worries about the slowdown of massive Federal Reserve intervention continue to hang over the market, as yields on the 10 year Treasury continues to rally, first breaching 2.8% Thursday for the first time in 2 years before retreating later in the day – but making a return trip Friday. They continue higher this morning and it seems fait accompli that 3% will be reached just because it is one of those big round numbers. Already the rumors of Hilsenrath stories to “save” the market (down just over 3% from highs) were making the rounds in the last hour of trading Friday.
The indexes took a turn for the worse although the S&P 500 worse than NASDAQ; the latter being helped again by Apple ala spring 2012. We are already at the 50 day moving average on the S&P 500 and the long term uptrend of 2013 has now been broken for the second time, following the action in June. This followed a bearish MACD crossover earlier in the month and the Relative Strength Index (RSI) is only below 50 on a sustained basis for the second time in 2013. Bigger picture the market is back to where it was in early May 2013.
Even as the indexes held up through latter July and early August it was a narrower and narrower market as we can see with the NYSE McClellan Oscillator which unlike the early part of the rally in early-mid July, never got back over zero. Now we are measuring very oversold readings so an oversold bounce is likely soon but with the technical damage done it is one to mostly observe.*
*unless of course this is yet another V shaped bounce that has happened so many times since 2009.
Using Fibonacci retracements Friday’s lows were a perfect 38.2% retrace of the June-August rally – you can see other levels noted on the chart.
This is sort of setting up for a bear trap going into the September Fed meeting as interest rates have backed up more than the Fed would like so it seems with that happening, “tapering” would go off the table. We’ll see – that is ages away in market time. In the meantime we have another week of summer action. Economic news flow is light and earnings season is ending, so much of the focus will be on the bond market, Fed, and rumors. Wednesday we have existing home sales (5.13M expected), and the FOMC minutes in the afternoon… Friday brings new home sales (487K)
Disclosure Notice
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
