Friday, April 1, 2011

Remarkable Strength

A sharp intraday reverse with about 90 minutes to go in trading took some of the steam out of what was looking like classic "first day of a new month" action. We still finished in the green but well off the early highs. Breadth was sold with banks taking the lead after lagging for the past week. The biggest sore spot was chips and technology with AAPL acting poorly in particular.

There was plenty of chatter about the rise in crude oil, but it is difficult to understand at what point it will matter to this market. We've completely ignored it all week but some of the late selling seemed to be related to nervousness over its steady climb.

There was no shortage of negatives out there for the bears to growl about. Probably the most worrisome, in addition to oil, is increased talk that quantitative easing is going to come to an end and interest rates will start to rise. We have had low rates and a friendly Fed acting as a tailwind for the market for a very long time and some folks seem to be recognizing that it isn't going to last forever.

Despite the laundry list of negatives, the market has exhibited remarkable strength as it pulled off another V-shaped bounce just when it looked like a downtrend was doing to intensify. I don't think even the most bullish bull would have predicted that the market would recoup nearly all of its losses from the low in mid-March in just two weeks. There were all sorts of very good reasons, both technical and fundamental, why that shouldn't have happened, but once the momentum was running we didn't look back.

The conditions in this market continue to be supportive of these straight up moves. I don't know if it's the Fed or computerized trading or something else that causes them, but the one thing that has been painfully obvious is that you shouldn't fight them.

Seasonality turns negative next week and we are still technically extended, but it has been a waste of time lately to even consider what negatives might cause this market to pause.

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