Yesterday was definitely not the type of session the bulls wanted to see. As I suspected due to the massive distribution day, IBD has put the market back into its "neutral" category which is 'market under pressure'. As far as I am concerned that means the 'Follow Through Day' is a failure. Which would mean this is parallel to the action in very early May when the last FTD did not work. Contrast the action yesterday )or early May) with the sessions in early January 2012 which confirmed a breakout. We did not see action like we saw yesterday in January. Whatever the index does today or in the next few days the action in the small group of leaders that had emerged yesterday was more of an issue in these eyes – it was poor. After finally enjoying 3 days of "breaking out and holding" (which I flagged as bullish) many were taken to the woodshed yesterday. That doesn't happen in a healthy market.
So let's be clear here – there is really no positive economic activity happening globally. The whole stock market thesis at this point is that the central banks can manipulate asset prices upward. People don't remember but when Twist was first announced it was booed by the market. All it does it swap one form of asset for another in the bond market. It doesn't add to the balance sheet, like Quantitative Easing does. Or Europe's LTRO operations. The market didn't take off until the LTRO's were announced and even then it took quite a few days for the market to absorb the situation. And we were in the best part of the year seasonally when activity seems to pick up around the holidays.
Again healthy markets should not be moving 2% up or down on a weekly (or in many cases daily) basis. Oil is imploding which eventually will be good for consumption but is a bad sign for global growth. Bonds continue to hold in, and the U.S. dollar took off again yesterday. Rooting for bad news so the central powers will intervene will be fashionable again (as idiotic as it sounds), but on days when that cheerleading does not dominate the reality is you are only left with the bad news. So it is what it is.
Yesterday the market gave back about 40% of almost the entire multi week move that started at the beginning of the month. For those who continue to build the bull case, indexes should regain S&P 1340/NASDAQ 2900 levels in short order. And individual stocks need to hold breakouts. Period.
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