you might recall on Saturday June 2 following the horrible NFP number that saw a 32 point drop (-2.4%) on the S&P 500 and a bond market spike to 1.45% all-time low yield, we tried to keep everything in perspective as this was a move we’d been anticipating that closed on that Friday right at a target of 1278 that represented a 10% correction and that it also looked to finally starting to climax into one of our big pivot support areas around 1265. In Definition of Insanity we wrote:
After Friday’s disastrous employment report the markets continued the trend we had been monitoring since March in what looked to be a climax type of move with treasuries making new all time highs, closing both the 10YR and 30YR at record low yields (1.45% and 2.52% respectively) while the S&P cratered 2.50% by 30+ points to close right on top of 1278, a level we have been watching for some time as it represents a 10% corrective measured move against the 10% Nov 2011 correction.
So let’s not get too carried away with wiggles in the data. Unfortunately, the Fed’s campaign to manipulate the banking system is driving increased volatility in the economy and in the markets. We have to manage risk with this in mind but make no mistake, there is nothing unusual about the price action in stocks or a 10% correction after a 30% rally.
The following Monday we traded down to 1266, found support but only just drifted higher, however Wednesday we really got motoring and rallied back to close above 1300 at 1315. We put out a brief chart update in can it be that easy? stating:
if you think the market rallied on “hope”, QE 3 or Mario Draghi you don’t know how to trade. now lets see if we get follow thru with Bernanke on stage tomorrow… if we bottomed it won’t matter what he says.
A week later as we approached the witching hour this weekend in Greece the market continued the reversal and closed yesterday at 1342, above the other pivot we had cited on the original chart at 1340.
Now don’t get us wrong, the market got overbought on Friday and you could smell a whiff of short capitulation into the close so we are a bit cautious up here and with Greek elections tomorrow and an FOMC meeting on Wed there are plenty of catalysts to roll us back over. If we are about to rocket higher through the 1340 area we probably need to do it with the indicators on the floor.
That said, we’ll remain bullish until we see something in the technicals that is concerning. Thus far looking at the weekly and how price held and reversed at our 1265 area which represents a big post financial crisis pivot in the Bear Stearns collapse low we think this thing could explode to new highs.
Currently the bearish thesis is predicated on “if’s ands and buts.” Thinking everything is a conspiracy is not analysis. People are way to focused on stuff that doesn’t matter like economic data and Greece. Meanwhile the market continues to defy skeptics. Maybe it’s telling you something.
If you want to think about economics consider this. The Fed wouldn’t admit it but Operation Twist was actually a de facto tightening. Since they launched the program the dollar has rallied, oil prices have eased and more importantly gas prices. What got us bearish in March was $4.00 gas prices. Today we filled up at $3.05. A 25% reduction in the price of one of the consumer’s biggest expenses is very stimulative to the economy.
Hey this strong USD deflation stuff is pretty cool. Now I think I will go enjoy some more pork bellies over fried green tomatoes and black-eyed peas at Maddie’s Place.
Trade Ex Ante