Welcome back to the trading week in the U.S. after the three day holiday. Last week was an outlier of sorts – a glitch in the matrix if you will – as there was actual selling post Wednesday morning when a Q&A with Mr. Bernanke went off script and had people worried the punch bowl could be taken away sometime in our lifetime. (People continue to misunderstand what the Fed is telling us, see last point here) This led to only the 3rd "correction" of 2013 as noted in the yellow shade below, and highlights again the only thing that matters to markets anymore are global bankers' words, actions, or threats of actions.
A typical year has three 5% corrections, one 10% corrections (with a 20% correction thrown in every ~3 years). Of course this year there has been zero 5% correction, not to mention any of the other sorts. All three episodes thus far (late Feb, mid April, and last week) have been of the 3-4% variety from peak to trough. Last week's was so quick it doesn't seem possible it was 3% but from Wednesday's highs to Thursday's low a quick 3% was shaved off the S&P 500. Of course that was with readings of extreme overbought on weekly and monthly time frames but as we know, overbought can stay overbought for a long time especially with central banker influence.
Of course the DJIA has not been down 3 days in a row for now over 100 sessions. It threatened to Friday but a flurry of buying in the closing moments lifted that index (AND ONLY THAT index) into the green – remarkable. :)
As for today's record? It is the "20 for 20" Tuesday – that is 20 Tuesdays in a row up. Barring a huge reversal as we saw last Wednesday, with futures screaming up it seems like we will be talking about 21 next week.
Bigger picture in the old days pre QE we used to go and fill index gaps most of the time within 2-4 months. There are now all sorts of gaps left over from the November 2012 run but it is well past 2-4 months. So things are certainly different in a QE regime, and a lot of old rules simply don't matter with the global infusion of liquidity.
In terms of sector rotation last week was a bad week for utilities mostly (and REITs which are not a S&P sector per se but a widely followed group). Both these groups have yield as a common denominator so whatever the market interpreted in Ben's words caused a lot of damage in these two sectors – note the huge volume spikes. Materials and technology also took some hits, while money rotated into staples, healthcare, and the lagging group of energy.
Other than that we'll have some minor economic data this week – as it has been for much of the past month+ almost all of it will be absorbed as positive because good news = good news and bad news = more central bankers. The only thing that has even weakened the market intraday since late April is when a Fed hawk comes out and squeaks a little about "tapering this" or "tightening that". Again for now, in this market, in this era, at this moment – nothing matters but central bankers. Until that changes all analysis over and above that is moot.
The only other thing to note is Japan's market did finally come in a bit the past week after going parabolic. But the yen has fallen again today and the Nikkei bouncing so we'll see if "that was it" in terms of their correction. All the 10% type of correction did was pull the Nikkei back to the big round number of 14,000 and from there a bounce to the 20 day moving average.