Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Looks like people had time to think about the implications of the FOMC minutes – which again to me, said very little new and are OLDER than recent statements from Bernanke – and are not that happy. I wrote this weekend in [Is it Really That Simple as Don’t Fight the Fed]
And does April-May… the only period the market may doubt a new easing program is coming down the pike, represent the only time this year the market “would be allowed” to correct?
This was in reference to a chart showing that the market has had incredibly strong moves when either extraordinary policies were in effect and/or the market was sure they were coming. Yesterday marked “doubt”, so could provide the time period – before the late April Fed meeting – this year where there is uncertainty about continued actions. Of course, we are still under an extraordinary Fed action via Operation Twist, so it’s not really a period where there is (a) no excess Fed action and/or (b) no smoke signal from the Fed that something new is coming.
Certainly whatever the case the market eventually has to have some pullback, and if this is the excuse we look back upon a few weeks from now – it is as good as any. But first, the S&P 500 – and other senior indexes – have to at minimum break through and below the 20 day moving average, currently at 1397 for the S&P 500. That has only happened once – about a month ago – and it proved to be a nasty head fake for the bears as a V shaped bounce happened the day after the break as it was leaked in the press that the Fed was considering “sterilized bond purchases”.
The S&P 500 has continued to make higher highs and higher lows, so one would also want to see if that changes. Last week’s lows were around 1391. A close below that would be the first “lower low” in the move from late December.
Whatever the future holds it is certain the past three weeks have been much tougher sledding even in the S&P 500, NASDAQ, and DJIA; the previous two weeks actually saw more down sessions than up even as the senior indexes hold up on the back of a tranche of “go to” stocks. These are the “generals” and thus far have not taken any serious damage.
The Russell 2000 continues to be the weak sister as it has been since late January, and actually has made no progress price wise since early February.
Ironically any modest correction probably is another feather in the cap for a new program of Fed purchases, although they would never admit that. (Note – it remains very annoying to focus so much on what the Fed will or will not do. That has nothing to do with the corporate outlook or profits or revenue or anything – but this is what the market has become.)
Gold, predictably based on the market’s “reaction to the new news” was hammered yesterday, and is down some 2.6% more in early trading today (not on the chart below). At the mid $1620s it is testing the floor of the past month.
We have ADP employment in a few and then ISM Non Manufacturing at 10 AM. Based on weekly claims there should be no surprise in employment data today or Friday (when the market is closed), so the ISM data will be one I watch a bit closer. If the S&P 500 is sitting right near support when it is released and the market doesn’t like it, could make for a very interesting session.
EDIT 8:15 AM: ADP came in at +209,000 which is more or less in line and continues the decent momentum of the past 3-4 months. Services surged by 164,000 which is important if a recovery is to continue.
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