Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Friday markets rallied sharply on no real news – just the assumption / hope / fear by shorts, that a resolution would happen over the weekend and based on past precedent markets would rip higher with market bears punched in the nose. This is one of those binary outcomes: no resolution = good chance those gains disappear, resolution = a V shape move up. Today we are seeing the latter.
Looking at the index charts, we continue to see a wide divergence between NASDAQ and S&P 500. With the S&P 500 this downward channel continues; the rally Friday took it to the top of the channel and any positive news would have us break out to the upside of it, which has led to power rallies through 2013. But without any positive news, we will now just see a continuation of the pattern. MACD has rolled over bearish and we see the 61.8% retracement of the September rally is in play.
The NASDAQ looks like a completely different animal.  There has only been a 38.2% retracement at worst and even that just barely for a session. MACD is just now beginning to see a bearish crossover but if it reverses in a day or two it can be rendered meaningless.
Areas like biotech are really helping the NASDAQ.
So overall we know the story – there is more of a drop dead date nearer to the debt ceiling limit mid October. For now it appears politicians are content to make sausage until then.
Last Friday we did not get the normal employment data and this week any government data will continue to be delayed. The main items on the agenda will be the FOMC meeting minutes (“thankfully” the Fed will never shut down) Wednesday, and retail sales Friday – expectations for unchanged and +0.4% ex autos.
Earnings season also begins to hit the radar, although not in earnest until next week.
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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/index.php/the-fund/holdings
