While the intermediate term action looks more promising technically after the "gap and go" late last week, it's still quite a volatile market. The entire holiday week's rally just disappeared in this opening 15 minutes of trading this morning and we're back to the mid level seen on the huge gap up Friday. That said, if we are in the throes of a sustainable move, action like today will help work off that major overbought condition I've been speaking of the past 2 sessions. Individual stocks continue to act 'better' so that is heartening from the bulls aspect.
If we take a step back and ask "why" stocks are acting better it is a bit bemusing – there is literally nothing positive in the global economic macro picture – everything is based on the belief that central banking easing can change things, including asset prices. But until that belief changes, you have to respect the herd.
I'd also point out a few more high profile warnings last night from the tech sector, Seagate (STX) among them. The hope for the bulls here is expectations for the quarter have been ratcheted down enough so we get the "beat lowered expectations" game, but with the global slowdown spreading there is a lot of risk to guidance in Q3 and Q4 as well. And lowered expectations mean lower profits – recall last quarter the only growth in the S&P 500 earnings came essentially from Apple and AIG. So if growth flatlines, or recedes you have to count on multiple expansion. We've seen a lot of earnings warnings the past 3-4 weeks, so I continue to believe this is going to be the most messy quarter since the earnings rebound began in latter 2009.
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