Since the May swoon the market has been in a violent pattern of indecision. While the trend has had an upward bias since early June, there has been no consistency. In fact since breaking out of a five session sideways pattern in mid June we've had a consistent pattern of 5-7 up sessions followed by 5-7 down sessions. Each time Lucy sets down the football and Charlie Brown runs up to kick it (the 5-7 day upswings), it is snatched away (the 5-7 day downswings). Obviously an exasperating situation for all involved – save for Lucy.
The technical condition of the market seems to be improving but of course everything is only obvious in retrospect. Wednesday's move broke the S&P 500 over a series of descending highs AND yesterday's move pushed the index nominally over early July highs. Those are both positives. Of course, as has been the case all spring/summer just as things look promising Lucy shows up and we are looking at a significant gap down in the morning. It is a perpetual April Fool's joke of spring/summer 2012.
If we are to have a real change in character the next handful of days will be quite important. The last few pullbacks (5-7 days in duration) have given back about 2/3rds of the previous rally. If we can see a less chaotic pullback – lighter in degree and duration, the bull case is strengthened. If this was just another devious headfake, the action in the past few sessions will have been nothing but another headfake of spring/summer 2012.
It appears that Intel and IBM used up the "not so great, but at least not a disaster" air in the room earlier this week – we had more of those type of reports from the Microsofts and Google's of the world last night but it's not leading to the same reaction. Also there were some negative reactions in Chipotle and Intuitive Surgical. The dollar also has hit a first level support after a multi day pullback and oil needs some rest after a huge push so nothing too dire here unless we have a complete lack of buyers in the next few sessions.
There were a trio of economic reports yesterday – none of them came in well, but at this point one does not know if the market is rooting for worse or better news as the former brings more calls for QE. Today the economic calendar is clear so we'll see who shows up on a summer Friday to press the case.
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