Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Stop me if you have heard this one before: After a seasonal uptick during winter months, economic activity slows, while European issues led by Greece flare up, and markets swoon. It has been the playbook the past three years and despite increasingly larger and larger rescues and liquidity infusions, not much has been fixed other than cans being kicked in every direction. With a common currency member states of the euro cannot let the market make the necessary adjustments to individual country currencies; and with no fiscal authority that hangs over the region to ‘print’ and ‘disburse’ as we have in the United States at the federal level we continue in this indefinite loops of crisis. Talk, previously unacknowledged, of the real possibility of a Greek exit from the EU has been floated but with no roadmap and no idea of the eventual effects on the Portugal’s (or even Spain’s and Italy’s), it is a bit like staring at the abyss. Clearly if there was an easy way to revert back to national currencies there would be no crisis in its current form – just a lot more money printing and currency devaluation in a world already awash with these policies – spearheaded by the U.S., U.K., and Japan.
In the futures market, S&P 1343 which held like a champ all last week finally broke overnight as we’ve seen levels as low as 1336; this latter level sits at the rough equivalent of 1340 which is an obvious support as the March lows. This despite a 50 basis point reserve requirement cut in China this weekend; normally something to bring glee to the speculator class who jump for joy with any central bank movement to easier money.
Last week’s damage was contained by the 100 day moving average – if futures hold, the index will open below that trend line and last week’s violent sideways action will look very much like another ‘bear flag’. While many were expecting an oversold bounce to kick in late last week, the news from JPMorgan hurt that idea. Markets did spike down than reverse Friday morning, but the rest of the session was used to slowly sell off – just another day of distribution. Again, there *will* be an oversold bounce, and within selloffs they tend to be the most violent upward thrusts but until this market shows real sign of accumulation rather than distribution it will be solely something to be aware of as a way to relieve selling pressure and nothing else.
Earnings season is essentially over other than drips and drabs. On the economic front I’d normally list what is coming in the week ahead but all that really matters are the Fed minutes Wednesday as speculators are desperate for signs of intervention and Europe. Keep in mind the 1-2 punch of “dovish” Fed minutes some 6 weeks ago, along with a poor unemployment report on Good Friday 2012 were what lit the flame to this selloff. From the litany of economic reports (retail sales, housing reports, Fed regional surveys, weekly unemployment claims) there should be something this week where the market breathes a ‘sigh of relief’ as it surpasses expectations, especially if the mood gets too sour. But only the most nimble and with very short time frames will be involved – and guessing where bounces due to “mood” come from is plain guesswork. A more serious advance will give plenty of time to partake.
To put a cherry on it, going back to paragraph one, to follow the pattern of 2010 and 2011 what leads with Greece ends with a yearly Fed action. Pacifiers are out across Wall Street as the whining and hair pulling begins … Uncle Ben must provide or the toddlers will cry in anguish. As always, it is a matter of timing.
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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
