Marketview: Perpetual Chop

If you think about it rationally, it would be foolish for any side seeking advantage in negotiation not to use up all of the allotted time.  I thought that there would be some resolution to the fiscal cliff talks before Christmas.  Boy was I wrong.  By all indications, these talks will go right down to the wire.  Any dreams of the choppy tape finding a bid and moving higher were dashed as the S&P futures went limit down in the globex session on Boehner’s no vote announcement.  The mini flash crash was either a warning shot of carnage to come or a blatant manipulation in thin overnight trade.  I remember the flash crash back 2010 when most people wrote it off as an anomaly.  The crash threw the market out of balance and the lows of the crash acted as a magnet for the market in the days and weeks that followed.   Price needed to auction lower to achieve balance and harmony in the world before moving higher.  Totally different scenario this time around but time will tell if we’re in for a similar treatment.

We continue to have a healthy market with a large sentiment overhang.  The problem is, of course, that investor psychology is a major factor in market performance.  Take some comfort in the fact that the government has been acting incompetent long before these talks and the market has done just fine.  I feel that they’ll have to do something pretty monumentally stupid to derail the rigged game we’re playing.

Global markets were mostly positive this week and the S&P 500 was up over a percent.  Take a step back and pretend you don’t know anything about the headlines: the market posted a positive return on the week, small cap led higher, financials are still in control, and safety is coming out of favor via underperformance in utilities and healthcare.  Besides the fact that $AAPL is struggling, is there a new catalyst for negative equity returns since the summer?  Bears will call this complacency but based on price action it’s more consistent with the wall of worry.  For the record, our indicators are still bullish.

Below I’ve highlighted small cap outperformance off of swing lows.

Each time the market prepares to stage an advance is also the time it is most vulnerable.  If we roll over from here the market tone will change; negativity will become embedded in the tape for a long time.  I know I’ve been saying this for the last couple weeks, but this is an inflection point.  The limit down “Boehner Low” would correspond to $SPX 1395.  A daily close below the this will likely result in heightened volatility and dominant downside price action for a good while.  If we continue to rally above 1360 we will hit new all-time highs in short order.

Winners: $GS, $BAC, $C, $HAL, $APC, $HON, $LMT, $GD

Losers: $MRK, $AMGN, $GILD, $KRFT, $PG, $CL, $CAT, $GE

This will likely be my last post of the year.  Thanks for reading and I wish you the best for your trading and life in 2013 (the luckiest year).

Bonus chart: Building Permits hit a new 4-year high.


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