My thought process that this would be a "quiet" week as everyone waits for Greece election/FOMC meeting early next week has been dead wrong. The intraday volatility has been extreme with multiple days of 30 point S&P swings including yesterday. Yesterday's session was interesting in the fact that even as the S&P 500 index went to intraday highs, the volatility index did NOT come in, and U.S. Treasuries stood firm all session. When deciding between the views of the stock and bond market, one usually wants to err with the latter – especially in the longer term. By late yesterday when the market flopped once again, we can see that divergence was important. …
As I type yesterday we had a 1.3% down day and today a ~1.2% up day on the S&P 500. 180 degrees. Just a chop fest. For you technical types yesterday we had an engulfing candle to the downside which is usually very bearish. And a close on the LOWS of the day. Bearish. What did it lead to? Not only a gap up (that was originally sold) but then a rally all day on rumors. As I keep saying, technicals have a lot less use in a rumor headline driven market.
1340ish remains a key level above – bulls can take heart in the right side of the 'shoulder' of an inverted head and shoulder formation still being created. This was discussed last week as a potential outcome. S&P 1305-1335 has been the range here the past four days; bulls will want to see this continue and then a break out and above the 1340-1360 level afterwards. Should only take 2-3 good rumors to accomplish.
One thing you have to say, with all the world falling apart (global slowdown, Europe mess) this market cannot fall more than 11% from peak as everyone assumes central authorities will keep throwing things at the wall until something works. While fundamentals matter less when intervention dominates, I expect July to be tricky as earning forecasts for the back half of the year are extremely aggressive. Based on the few companies reporting the past 3-4 weeks we see a lot of warnings and cutbacks on Q3.
Is it Friday yet? Incredible volatility already in a session and a half. I don't see any rumor of the day that drove the market off the lows this morning but it remains difficult to be on any side of a trade at this moment with the wild rips either way. I thought this week would be "quiet" and "not gappy" ahead of the Greek elections/FOMC statement. Wrong!
I saw this quote and it pretty much summarizes things – we are hostages for now:
“The daily egg shells we walk on this week over Spain will of course be followed by Sunday’s election in Greece and what, if anything, the FOMC will announce next week,” says Peter Boockvar, portfolio manager at Miller Tabak. “Daily government (both from central bankers and politicians) event risk in either direction is paralyzing and dizzying.”
It goes without saying the action yesterday was putrid. From the overnight futures highs the S&P 500 sold off some 40 points to close at the lows of the session. Normally that would bode for a poor morning but of course the market is zipping higher to another gap, this time upward. With the exception of days like yesterday much of the moves the past few weeks have come in the overnight market with these gaps, either up or down. It remains a difficult environment and in essence the market is churning here. The closing price yesterday was in the same range as prices we saw on May 17th, there is simply a lot of violent action day to day, and week to week. In the near term, the market has worked off the oversold conditions during the quick move up and at this time the S&P 500 is in the middle of a range it has been moving around in the past month.
There is not much more to add here that has not been said the past few days or weeks – until things calm down and we see an environment more akin to January/February 2012 there is not much to do. On one side we have a slowing global economy, and the major issues of Europe. On the other is intervention after intervention.