Marketview: Panic Over

The three things moving the slow holiday market this week were the housing numbers, Israel/Hamas ceasefire, and tepid hope of fiscal cliff resolution.  With home builders continuing to maintain their busy pace and gather momentum I find it hard to believe that we will see a recessionary environment in the first quarter of 2013.  In other news, France was downgraded from AAA by Moodys (after S&P downgraded 10-months ago) and the markets didn’t even blink.

Last week we wrote:

On paper, we should be bottoming out here, but the question on everybody’s mind is whether the organized nature of the selloff is due to a resilient investing public or a fundamental market sea change being met by complacency.  The market has reached and exceeded my support level of 1360.  We should rally from these levels, or there is something very sinister at play.

The feeling is still roughly the same.  We’ve rallied off the bottom but our most sensitive indicator (MAMOx) has not yet turned bullish.  My overall bias still favors the upside by a large margin but there’s “plenty of wood to chop” in the form of overhead resistance.  I cannot completely disregard the fact that this breakdown might be a part of a larger correction.  Fact is, now that we have a playable bottom, if we fail to make new highs the market is likely indicating that we are in a new bear market.

Keeping both scenarios in mind: indicators that the market is healthy include financials leading higher, employment continuing in the right direction, and a depressed $VIX.  Watch $BAC to break above $10 and $XLF to break above $16.50.  Housing maintaining a market leadership position is not a prerequisite for continued overall advance in my opinion.  Warning signs include the $SSEC breaking down below rock solid support of $2000, and broad market volatility expanding.  A sign that we may not advance to new highs is if we make choppy upside progress from here with an average true range for the $SPX above $22.  Violent indecision usually precedes big downside moves.

This week basic materials, consumer discretionary, and tech sectors led higher.  Utilities, healthcare, and industrials were weakest.  Value has started outperform growth on this retracement which is healthy overall.  Watch utilities as they approach 52-wk lows.  This can be viewed as a sign of longer term complacency setting in.

Winners: $AMZN, $$AAPL, $BAC, $COF, $MET, $DOW, $MON, $FCX

Losers: $HPQ, $INTC, $EXC, $SO, $AEP, $JNJ, $HNZ, $KRFT

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