Trader Mike
STTG Market Recap May 22, 2013
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In Monday's recap we wrote, in regard to Bernanke's testimony Wednesday:

The fact we are going into that testimony on such a huge run and at the top end of the channel probably means odds are he is going to say something that someone will interpret at somewhat hawkish and we might actually get some modest selling, but we'll see.

Well we got some modest selling; in fact a bit more than modest.  Not versus Tuesday's close but certainly versus the highs enjoyed this morning.  The S&P 500 moved in a 35+ point range today as every comment from Bernanke (and then later in the day during the minutes of the last Federal Reserve meeting) was cause for concern, pro or con.  This is what the market has become - simply a daily monitoring of what the central powers say and will do.  Really nothing new was said - the Fed is monitoring things and will adjust their program in the future.  The S&P 500 fell 0.83% and the NASDAQ 1.11% but it certainly felt worse in the fact mid and small caps took bigger hits and the drops from morning highs were far more substantial.   Here is a chart of the wicked intraday volatility:



Technically the indexes had what is called a bearish outside day, rising above the previous day's highs and then falling below its lows.  Prior to the quantitative easing era this would be a serious warning sign.  In the QE era warning shots like this often end up being forgotten in a few days as stocks start another leg up.  So to be blunt the constant flood of liquidity into markets alter the traditional way things work and cautionary signals often fail.  But we're throwing it out there for examination.  For the S&P 500 all today did was take the index from the top of its channel back to the 10 day moving average, a place it has not seen since May 2nd.





The McClellan Oscillator quickly turned to a mildly oversold condition in the mid -20s.



Unlike prior selloffs for most of the past few years, there was NOT a flight into bonds as the reason for the selling is an eventual slowdown in bond buying by the Fed.  Hence without the biggest buyer on the planet prices go down for bonds, and yields up.  But it is too premature to forecast when that will be.



You can see this "bearish outside day" action in a host of sector ETFs and stocks - see the ETFs for financials and industrials for example.   Again, in a normal environment this often signals a turning point or at least a place to be cautious to see what the market does in the following 3-6 sessions.  In the QE environment all bets are off.





With market players trained to buy every dip and volume sure to drop off significantly the next few days as traders head out early for the holiday weekend it seems unlikely to see any major downside action but we'll see what happens when people return early next week.

Here is some data through yesterday's close from BeSpoke Investment, speaking to how consistent the rally has been in 2013.

This Friday will be the 100th trading day of the year, and no matter how the rest of the week plays out, 2013 will rank near the top in terms of years where the S&P 500 was the most consistent in terms of positive days. So far this year, there have been 61 up days and 35 down days. Even if the S&P 500 trades down every day this week, 2013 will be tied for 5th place in terms of most up days to start the year. If the index trades up every day for the remainder of the week, it will have had 65 positive days in the first 100 trading days, which would rank second all-time behind 1995 (68).

 In the table below, we have listed each year where the S&P 500 traded up on the day in at least 60 of the first 100 trading days. Prior to 2013, there were eight other occurrences. Of those eight years, the S&P 500 averaged a gain of 9.1% over the rest of the year with positive returns seven out of eight times. Furthermore, in the one year where the S&P 500 was down for the remainder of the year 1975), the decline was less than 1%.



Original post: STTG Market Recap May 22, 2013

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