Market Montage

Status Quo Redux…

Mark Hanna — Mon, 20 May 2013 12:49:52 +0000

Again, not much to add to this market in terms of analysis – nothing matters other than central banks. Last Wednesday/Thursday there were some 9 economic reports, 7 of which were disappointing or could be considered as such and all it got was one rare day down, and then new highs Friday. Markets are up 10 of the past 12 sessions and 17 of 21. Friday's move to 1666 was an exact 1000 point rally from March 2009's 666 bottom. Since this most recent leg of the move has been medium fast rather than a huge spike ala 1999, things are not necessarily overbought on the daily chart but we are seeing extremely rare action on the monthly and weekly chart, due to a lack of any correction this year. Aside from being above the monthly upper bollinger band the S&P 500 is some 12.5%+ over its 200 day moving average; over 10% is rare. The DJIA has been up 18 Tuesdays in a row. Etc etc.

It is a quiet week economically – a few housing reports and such but again last week the market ignored all the bad economic news and two mildly positive reports Friday were celebrated. It's that sort of market. All that matters are central banks and on that end Bernanke visits Congress Wednesday at 10 AM – with the FOMC minutes of the last meeting that afternoon. The normal clucking about tapering begins and that is about the only thing the market sees as a reason to selloff for nowadays. Of course the FOMC just added language at the last meeting about "reducing OR increasing" bond purchases so the taper talk is ironic. Expect hours of analysis about nothing ahead of Bernanke.

In terms of sector rotation last week was all about financials…

… but over the past month all the 'right' groups have taken charge, along with small caps regaining strength. (to remind "cyclicals on he far left = consumer discretionary/retail). Not much to poke holes at in this market about other than any lack of pullback and weekly/monthly overbought conditions and seemingly no reaction to any news for more than an hour before a resumption of the melt up.

Not much more else can be said about this market.

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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

SPX Reaching Historical Extremes on Weekly/Monthly Chart

Mark Hanna — Wed, 15 May 2013 17:09:41 +0000

We are starting to see some very extreme readings on our monthly and weekly index charts since there has been no correction this year. I posted below first the monthly chart of the S&P 500 going back 15 years showing bollinger bands – rarely do we get above the upper monthly one, and never have we been this far above during this time frame. Then below that I posted (with 4 charts of 4 years each) the weekly data and you can see we are at a rare time when the index is above the weekly bollinger band as well. This non stop rally is getting very historical.

Monthly – we've never been this far above the upper bollinger band in the S&P 500 during the last 15 years, and that includes the 1999 stock market bubble (which was more NASDAQ focused of course!) Only thing similar is 2006-2007 where there were a few months we skimmed just over the upper bollinger but nothing to the current degree in May 2013.

Weekly – this level of extreme does happen every few years but rare.

Mid 2009 – Mid 2013

Mid 2005 – Mid 2009

Mid 2001 – Mid 2005

Mid 1997 – Mid 2001

For reference I did a 15 year monthly chart for Japan's Nikkei which is in its own universe right now – so yes it can get more crazy I suppose.

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[Video] David Tepper Remains Very Bullish

Mark Hanna — Tue, 14 May 2013 12:53:42 +0000

Hedge fund titan is infamous now for saying in 2010 as QE2 was being brought out that you must be long this market since the economy will either improve (to help the market) or the Fed will act to get the market moving. So now his comments are very closely watched. Tepper had about a 30 minute segment this morning on CNBC and didn't pull back on any of his bull nature. If anything he now implies if there is no tapering by the Fed the market can go into "hyper" mode (i.e. a bubble awaits)

Hedge fund titan David Tepper, founder and president of Appaloosa Management, told CNBC on Tuesday he's still bullish on stocks and investors shouldn't worry about the Federal Reserve tapering its massive bond-buying program. "There better be a true [Fed] taper or else you might be back into the last half of 1999," Tepper said in a "Squawk Box" interview. "So like guys that are short, they better have a shovel to get themselves out of the grave." "If the Fed doesn't taper back, we're going to get into this hyper-drive market," he explained. "It's a backwards argument. To keep the markets going up at a steady pace the Fed has to taper back."
His appearance on "Squawk" in September of 2010 sparked what was dubbed "The Tepper Rally," after he said the Fed's asset-purchase program virtually guaranteed strength in stocks.
Tepper compared the reason for being in stocks to the ending of the movie "My Cousin Vinny," saying the evidence is overwhelming.By his calculations, he said there's $400 billion in the economy looking for a place to go and stocks are one of those places. Tepper said he's nervous to be shortanything because there's so much cash out there.
The last time Tepper was on CNBC, he said stocks were cheap and on "Squawk" Tuesday he said he still feels that way.

13 minute video below -

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Status Quo…Again

Mark Hanna — Mon, 13 May 2013 12:39:02 +0000

Very little change from last week. Whatever the news it is good news for the market – the economy is not strong enough to stop QE, but not weak enough to worry anyone. We are in this perpetual 1-2% type of GDP, with job growth just above population growth each month and little inflationary pressure in figures the Fed cares about. It remains all about central banks – the twin powers of Japan and U.S. continue to plow ahead unabated (with the yen decimated even further last week). Last week a bevy of central banks joined in easing – Australia, South Korea, Poland, among a few others; again just last week alone. This morning Israel joined the party; it has essentially been a bank a day this past week. There really is no other discussion than the global action by central banks; it dominates everything in these markets. Late Friday, the Fed talking head at the WSJ, Hilsenrath, wrote a story about a "plan for a plan" (Fed Talks Exit blah blah) to slow down easing in the future but it has nothing to do with anything in the near future. An exit of any proportion is so far in the future considering the QE lever will now be used rather than interest rates – i.e. rather than $85B a month it might be $65B or $50B but then in the next recession heck it could jump to $110B)

Not much "analysis" really means anything anymore – we have all sorts of records being bested or matched; the longest streak to begin a year without a 5% correction in many years; the longest streak without 3 consecutive down days in the DJIA since 1958, margin debt back at records, etc etc. Hedge fund manager Doug Kass gave his mea culpa last week, noted economist Nouriel Roubini threw in the towel saying go long for another 2 years before it all bursts and so on and so forth. No one wants to fight the central bankers. There has been very little in terms of earnings growth, it is all about PE multiple expansion – just in the first 5 months alone the forward looking P/E has risen by 1.5. Markets that go up on P/E rather than earnings are impossible to really gauge – we saw in 1999 the P/E can expand to whatever is wished for by the central bank when it goes bonkers reacting to crisis (LTCM in 98) or in advance of a potential one (Y2K). The things being done now by the central banks make all that pale in comparison so who knows.

As for the markets themselves after a lot of negative divergences for two months, the market has made them all go away. After breaking a key support line mid April the S&P 500 has done yet another V shaped bounce as it has done over and over since 2009, confounding everyone who remembers the market pre 2008 when rallies were gradual and drops were sharp. No longer the rule. S&P 1597 was the breakout level from a week and a half ago but frankly it doesn't seem to matter if we fall back below it because the dip buyers show up no matter what.

Small caps via the Russell 2000 actually were the weakest index – the one to make a "lower low" in 2013 in mid April; hasn't mattered – this market is now back in a leadership position which is bullish.

Breadth has improved dramatically after "sucking" for a few months.

The past two weeks has seen a sharp turn in which sectors of the market have taken leadership – for over two months it was large cap defensives located in utilities, consumer staples, and healthcare. That has turned 180 degrees and a lot healthier group of cyclicals now has taken the baton.

Last, Treasuries after rallying with the market (strangely relative to action the past 3-4 years) finally sold off over the past 2 weeks – a net positive.

But frankly that is a lot of talk and chart drawing; in times like this it is intellectually bankrupt to pretend it matters – all that matters to this market is central bankers in every corner of the world uniting in driving up asset prices. Until something changes this market really only goes in one direction.

Disclosure Notice

Status Quo

Mark Hanna — Mon, 06 May 2013 12:36:28 +0000

Friday was pretty typical of the year – when a key technical level was needed to be broken it happened in premarket. There were 3 economic data points, 2 (including ISM Non Manufacturing) missed, but all that mattered was the employment report. More broadly speaking with 5-6 weeks of weakening economic data all the market really did was go sideways in a wide range. And that ended Friday with the break out of the S&P 500; even the lagging Russell 2000 joined in.

At this point there just appears no reason to do analysis anymore – the central banker liquidity seems to have bid up nearly every market and whatever the news it only matters for hours or at most days until the next wave of buying comes in. We saw a bunch of high volume distribution days over the past month; that used to matter – but no more. Breaks of technical support – doesn't matter. At this point it has to be put on the table that a 1999 scenario awaits, although not so concentrated in one index (NASDAQ) as 1999 was. Everything high end is soaring - art, collectibles, farmland, equities, bonds. So this worldwide QE seems to be inflating anything ex gold and some commodities which are still Chinese dependent; considering what is being done globally makes Greenspan's 1998 (LTCM bailout) and 1999 (Y2K prevention) actions seem like a pittance it appears Tepper has had it right all along. Already 2013 is the first year in 17 without a 5% correction in the first four months, and the DJIA has not had a 3 day losing streak this year – the longest streak to begin a year since 1958… so we now just sit and watch to see what other records break. Economic data quiets down this week after a heavy dose last week, but again – it appears moot anyways.

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New Highs on Good Employment Report

Mark Hanna — Fri, 03 May 2013 12:47:06 +0000

One of the genuinely decent economic reports of the past 6 weeks this morning as April's data beat expectations AND prior months had significant revisions up. The participation rate was flat (at very low rates) but the unemployment rate did tick down. Average workweek ticking down 0.2 is the major wart today but most only read the headlines and don't worry about details so just a wart for economists not the market. Anyhow we have breached to new highs and a resistance top that has been here for two weeks on the S&P 500 in the premarket, and will be back to overbought in the near term assuming the premorning pop holds. It is good to see this data point is diverging from a lot of the others which has weakened considerably – hopefully not something that gets revised down in future months. ISM Services at 10.

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180 Degree Reversal from Yesterday

Mark Hanna — Thu, 02 May 2013 15:54:59 +0000

The S&P 500 is bouncing well off that new/old support which had held since November (see previous post), with the exception of the one break middle of last month. This is positive in the fact it reinforces it as a useful line to follow. Markets were in decent form this morning but then a news report that some ECB members were wanting "bolder" measures created a new leg up – essentially it's all about central bankers right now and until that changes it is status quo. Yesterday's bad economic data is already an afterthought. Tomorrow we have employment and ISM Non manufacturing – the weekly claims figures have actually improved quite nicely so it is a bit of a surprise that the monthly data has not done better.

But corporate profits are based on lean corporations with productive work bases – not hiring a slew of workers…especially as revenue growth is a major struggle. So what is good for Wall Street isn't necessarily going to be seen in an employment report.

Disclosure Notice

In a Quaint Move, the ECB Cuts Rates

Mark Hanna — Thu, 02 May 2013 12:02:41 +0000

You remember rate cuts right? Aww, the good ole days of central banking.

This was as the market ~~demanded~~ expected.

The S&P fell to a key area yesterday, one that has been the main support (with one break) the entire rally. Bulls will want to see this level re-established as useful.

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Very Rough Day for Small Caps

Mark Hanna — Wed, 01 May 2013 19:28:03 +0000

The Russell 2000 is really taking it on the chin today with a bearish engulfing bar that has erased the last 5 sessions completely. While we came in to the day overbought short term it is not an easy market when you can erase a week worth's of gains in 1 session. This has been the pattern of April – quick moves down followed by the V shapes up. Unlike the DJIA, S&P and now NASDAQ we did not see a yearly high on the small cap index.

Disclosure Notice

Fed Adds Word "Increase" to Statement

Mark Hanna — Wed, 01 May 2013 18:06:26 +0000

I mentioned two weeks ago a black swan for the fall is the Fed INCREASING QE – rather than the popular thought it will be tapering. Today's FOMC statement for the first time included the word "increase (or reduce)" asset purchases. And so the groundwork begins…

"prepared to increase or reduce" level of asset purchase program,