Despite another day of little volume, we have a nice bounce off today's lows. The S&P 500 really did not puncture 1108 except for a minute or two during the normal trading hours and now the next test approaches, the 50 day moving average. This morning's news, just like last Friday's weak retail data only harmed the market for an 30-45 minutes of the normal trading day. As long as bad news does not matter you have to respect that trend - we've had a string of these bad economic data points out of the U.S. the past 2 weeks and it's all been shrugged off. Maybe we are back to bad news = good news = Fed keeps rates low forever. Whatever the reason, the price action is the price action.
As I have stated lately I'll feel more comfortable on a move over S&P 1120 which would mean the 50 and 200 day moving averages have both been cleared. If so, I expect my individual short positions to stop out (most are at 2-2.5% stop losses) which I'll take and then I'll move from slightly net long to much more long. With quarter end approaching it is fund managers interest (a group which lives in 'long only' world) to mark the market up into June 30th. Something one has to be cognizant of every 90 days.
Looking at the bigger picture, the yearly highs were near S&P 1220. We have a few scenarios if S&P 1020 is punctured:
- We surpass old highs, and are off to the races for year 2010. Bullish
- We reach old highs and then fall back, creating a double top. Bearish
- We never reach old highs, and form a 'head and shoulders' formation. Bearish
So just like that, a few days ago we had a market that could not break over its 200 day moving average... and now we have to think of scenarios for reaching highs of the years. It seems hard to believe conceptually we're going to race to new highs with what I see hitting the economy in the next year, but then again the market was at all time highs in October 2007 despite what I saw coming back in 2007! [Aug 31, 2007: Et tu, September?] [Dec 3, 2007: First Half 2008 Predictions] It is difficult to observe the world from outside the Matrix, when most market participants are happily attached to it.
Thinking ahead to July, this is going to be a very interesting earnings season because it will be the last with very easy year over year comparisons. But as we have seen already (Fedex this morning - which again does not matter since technicals trump fundamentals in HAL9000's world) the guidance is going to be interesting. The market was happy three quarters ago with companies simply saying the world was not ending. Now expectations have really been spiked in terms of earnings expectations for latter 2010 and 2011. With stimulus running off (but easy money by central banks firmly in place) across most of the world, it is going to be interesting to see what guidance will be like. My call is for a ton of beats of estimates but much more potential for cautionary guidance. Hence July could be a bumpy ride as we react from day to day to each report, and earnings season won't be as 'easy' as it has been the last 3 quarters.