The action has been very choppy since the post QE3 jump late Thursday (the 13th) and Friday (the 14th) over three weeks ago. While it is healthy to see consolidation of a move up and the overbought conditions created by the fervor of that moment, the action is different than the Q1 rally in many ways, mostly in the type of stocks going up and the length of this type of consolidation period. To the latter point most of the consolidation periods in Q1 were 6-7 sessions, which led to an immediate next step up in the rally (to new highs). We are now in the midst of a 15 session consolidation period with no new high. This could be causing some potential issues, especially in the NASDAQ (more later).
Of course the type of stocks favored are also very different. In Q1 the "LTRO rally" was combined with a belief in some form of larger global economic rebound as cyclical stocks were among the leaders. Not so this time around as the Intels and Caterpillars are major laggards.
Oil has weakened considerably which is not exactly the "risk on" type of scenario. Of course this could be "Saudi" specific as they always seem to set their pumps on overdrive ahead of an American presidential election.
Granted, this should be a net positive for consumers (eventually) but as we see in California it is not exactly like gasoline prices have dropped considerably. Specific to the stock market there are a host of oil specific companies and their shares have also lagged, not led. The OIH ETF sits at its 200 day moving average:
So we seem to be back to a decoupling scenario last seen in late 2007 where the U.S. has relative growth but the rest of the world stagnating. This can be seen in the housing stocks and even financials.
The S&P 500 itself, still looks decent as it bounced off its 20 day moving average last week, but has yet to make a new high.
The NASDAQ looks a bit iffier as the danger of a potential (bearish) head and shoulders formation sticks out there like a sore thumb.
The main culprit of course being Apple which bounced off its 50 day moving average mid week, but fell right back to weekly lows Friday (taking the market with it).
Obviously it would be of big help if Apple can find a bottom here so NASDAQ can firm up.
As for the week ahead, earnings (kicked off by the traditional miss by Alcoa) should take some of the spotlight away from the macro headlines. Other then the Beige Book Wednesday, Producer Price index and Consumer Confidence Friday, it is actually VERY quiet in the U.S. Maybe there will be some noise across the pond as Euro finance ministers meet Tuesday but really the only thing the market currently cares about is Spain to come to the market with hat in hand. There is a dysfunctional scenario currently where Spain is not being forced to ask for the bailout since the market has dropped the rates on its sovereign debt due to the fact it believes it will ask for a bailout sooner rather than later. So the PM there just seems to be tap dancing for now – each time he burps the market takes an intraday swoon.
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