Holding Pattern « Market Montage

While there was quite a bit of intraday volatility last week, the markets essentially went nowhere.  The S&P 500 was fractionally higher (creating the 7th straight up week) while the NASDAQ was fractionally lower.  While the big move of the year was on Jan 2 (about half the year's gains in that one day), since then its been a lot of sideways and grinding up.   Despite calls from many, the markets have yet to show a lot of selling pressure.  There have been maybe two distribution days of note thus far in the past few weeks – not enough to raise major alarms.  Also, the "right" groups continue to lead – more on that below.

As we see in the S&P 500, the most bears could do on this index is get it down to the 10 day moving average.  While there have been some breaks of this level INTRADAY you can see from the chart below, there has not been a CLOSE below the 10 day this year except for one session (and that day the market closed on its lows ONLY to be followed by a strong up day completely reversing the weak session – major head fake).  Even very strong markets generally will check back to the 20 day every few weeks – so this is relatively abnormal strength.  The S&P 500 has been in this 30 point trading range for all of February: 1495 to 1525, the latter being obvious resistance…. which makes the former support.

The NASDAQ has been the laggard index for 2013 (and late 2012) as Apple's weakness is a continuous drag.  That said it has now reached fall 2012 highs and that is an obvious resistance/rest area.  Which has been happening.

The Russell 2000 on the other hand has been the star of the rally from mid November and continues to eek out new highs every few days.

Looking at sectors, where is the leadership?  Financials, transports, industrials, and semis.  That is more or less the best combo you can ask for – even energy has picked up of late even as oil prices themselves go nowhere.

So you have small caps AND the right "risk on" sectors still leading.  Until that changes, despite the persistent rally with no real pullbacks, and complacency among bulls it is difficult to make a near term bearish read.  That doesn't preclude a 3% correction in any week or two week period, but people have been calling for that for a few weeks now.   Further, there ARE corrections happening under the surface – certain groups get taken and hit for 2-4 days, and then they bounce while another group gets hit.  Hence the index barely budges but corrections rotate from one group to another.  Thus far we are repeating the pattern of the past two years where markets roar out of the gates.  If we repeat the past two years, the correction hits latter March – May time frame.

Friday there WAS a shot across the bow of the consumer space as a Bloomberg story on a Walmart executive email noting that early February sales were quite horrid "the worst in 7 years".  Considering the financial crisis of 2008 fell in that time frame that says a lot.  But it caused a 90 minute selloff and then buyers returned.  When bad news matters for more than a few hours, it will be important to take note.

We saw similar behavior to poor European GDP last week – bad data and a gap down that was bought.

Earnings season is over, although we get random names hitting in this time frame.   So the focus is on econ data, overseas news, and Fed / central bank doings.  To that end we have some housing data and inflation reports (the latter which dont matter to the markets anymore as the Fed is keeping rates low for a LONG time).  The FOMC meeting minutes Wednesday might cause the normal ruckus – people will try to read between any sort of line looking for a reason to believe the Fed is going to tighten when it is year(s) way.  That is 2 PM Wednesday.  We will have flash purchasing managers data out mid week as well from China and Europe.


Now for your moment of zen…

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