Into the trading week, (Apr. 23- )

Into the last trading week, a long range bound trade between SP1370 to 1400 narrowed and had Bear chartists drawing up wedges, flags indicating a break of 1370SP would resolve the range.  Unfortunately, the Monday gap down leading to a low of 1358 backfired with SP reversing over 3% from trough by Friday’s close. (1.8% SP gain on the week). 

 

One thing charts couldn’t tell you is how short lived the breakdown might be or why…., “Instead of a bad close or volume intraday ramp down through supports (wedges, flags), we got a gap down, which allows for a gap fill trade.  As for intraday, the gap forced some to cover and lifted market well off lows.   If the wedges, flags were broken intraday, shorts would have pressed and more longs would have exited.   Instead, today was slow and not panicky,…”.  Still, the next day as gap was being closed, the market experienced a simultaneous sell off of high beta ‘leader’ stocks that brought on fear for the health of the market.  Following the selloff that had many baffled, it was noted a rotation of money as with AAPL earlier was occurring this day into Industrials, multi’s as earnings were still coming in strong in the sector(s).   Concluded with, “If not mistaken April 9th was a similar day for growth stocks.  Although entire market sold off, IBD 50 underperformed (off >2.5%).  That was also the AAPL peak and since a 15% correction to trough has occurred in the stock,  SP has been relatively flat since!.   That day time more ‘growth leaders’ tumbled, yet a more convincing retreat/ bigger market sell off never materialized as was the speculation due to high beta action.  It (retreat) shouldn’t materialize now either and this will likely turn out to be not much more than a 1 day phenomenon once the shock and value is seen.”.  

   

A 1 day phenomenon it was!.  Leader stocks and/or majority of Shadowlist beta’s made a straight line 3 day run. (A recap of how this unfolded is probably good to embed in your trading methodology for future reference).

  

By the end of Wednesday’s trade, we were pointing out the technical positives, IBD market confirmed uptrend call and reclaiming SP 1400…”..pushed SP to 1390 /over our 20MA benchmark for first time in 2 ½ weeks. Without AAPL, SP still gained ~1% on the day.   RUT near important ~815 level again”, ….Yes, technical stuff mattered , but it was supported by FOMC, European ‘growth shift, Eco’ data (housing notably) positives to make it work, unlike the gap down.

  

Into the trading week,

  

Eco’ data, Global PMI’s should be in- line with Flash numbers/expectations. EU zone can’t be any worse and China’s # will likely be ignored as it was after the ‘better than expected’ Flash PMI last week.  U.S #’s will be more in focus, expected to be flat to last Q.  ‘Longs’ hope is the IC’s have been deteriorating due to ‘seasonality’ (early warm weather boost, now give back), next I’C is likely critical for this assumption to be believable for much longer.  NFP# follows on Friday with consensus at 175K additions up from 120k last month.  A case for easing will be made if NFP# is sluggish again.  In all, market reaction to NFP may just depend on where SP stands by the report.

   

ECB,  the growth twist gained a lot of traction late in the week in major financial publications. ,” ECB might be stepping up on the growth compact measures to go with the fiscal discipline pacts”.(25-04).  It’s a big positive hope for the region’s economic recovery as austerity resistance grows.  PMI’s likely showed austerity is backfiring, while Dutch gov’t falling showed reform won’t go along way alone. Unfortunately, this will be no easy task to mesh the two together.

   

Fears are receding (China), Europe gets shrugged off immediately  and/or after a 24-48hr market ‘crisis’ ensues, (Spain yield fears recently, (now at ~5.7% even after SP downgrades), Dutch gov’t crumbling, French elections, UK back in recession are this weeks’ examples.  One thing that is not receding is the consumer and their consumption numbers in the U.S as this week highlighted with a few data points. Entering last week and highlighted throughout week was retail…. “Still, one sector really interested in is the ‘retail’ luxury/ growth space to see if momentum is continuing.”.   Last 3 days, Consumer discretionary, RTH/XRT all outperformed to 2012 highs. (SSS#’s next week and retail sales #’s May 15).  This remains an underlying reason to be tactically long in ’12 and the reason a  ‘go away in May.’, spring market weakness may only be a ‘Bears’ wish.   All critical data points show economy is better now than in 2011.