The market continues to grind out gains, at least on the larger indexes, with no quit in it. Futures are down about half a percent… another 0.2% lower and it would be the biggest loss of the year (!). I'll show the S&P 500 chart below but the DJIA and NASDAQ are generally in the 'same vicinity'. I keep speaking about how this market is essentially unshortable until we see at least a break of the 20 day moving average; this market is so teflon on the larger indexes it is rare to even see a break of the 10 day moving average. (as an aside 1355ish i.e. the 10 day moving average, is where futures dipped to overnight before bouncing)
Meanwhile small caps are showing relative weakness – essentially after the gap at the beginning of the month in reaction to the monthly employment data there has been no traction at all. However, last Thursday when the Russell 2000 threatened to break the 20 day…. buyers came in.
Transports continue to weaken…
And the "QE" + "LTRO" + "More Japanese QE (1.5 weeks ago)" + "More BOE QE (2 weeks ago)" seems to have finally put a charge under oil and gold.
Or we can perhaps say it's all due to Iran tensions. Whatever the case, all we need is about $20 more in oil and we can begin the circus on Capital Hill where they parade the oil execs and wag fingers (while accepting campaign donations immediately thereafter). No one will look down the street to Bernanke… or across the Atlantic to King and Draghi. Of course gold can go wherever it wants (although it has some resistance there at $1800) but when oil gets a moving, it has a real drag effect on the economy.
VIX continues to plummet as "the central banks of the world have your back" is firmly entrenched once more. There was a spike there ahead of the Greek vote but the 50 day moving average is clearly an issue.
Meanwhile, U.S. Treasury bonds do not agree with the stock market – but then again we don't have anything close to a free market in bond markets so knowing what the price is "telling us" is not as useful as in the old days. Ten years stuck in a range of 1.8% to 2.1% despite all the "economic improvement" the stock market has signaled to us for a few months.
On the earnings front, we have exited the heart of earnings season but there are still some interesting reports headed our way this week. On the economic front, it will be a busy week as we face the turn of the month.
Tuesday – Durable Goods (expectation 1% decrease)
Wednesday – Q4 GDP second revision (expectation no change from the first revision of 2.8%), Chicago PMI (expectation 61.0 vs last month's 60.2)
Wednesday overnight – China and European PMIs (which almost always cause a gap up — or less rarely down — the following morning)
Thursday – ISM Manufacturing (expectation 54.6 vs last month's 54.1), and Bernanke speaks!
There will be no monthly labor data on Friday – it will be the following Friday.
Keep in mind at some point expectations will have ratcheted too high in one of these key economic reports as economists have moved their ball forward quite a bit over the past 60 days. How the market handles an eventual 'miss' vs expectations will be key to watch. As will the point oil prices actually "matter" to the market. The same things the market is benign-fully ignoring will at some point in the future be the exact reasons blamed for a selloff. We just never know "when".
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/holdings/blog