Was That the Stock Market Correction?

By Todd Harrison  MAY 28, 2013 10:43 AM

The bulls attempt to continue their historic march.


Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

It’s Turnaround Tuesday — or that’s what they used to call it!

These days we might as well label it “Tickle Me Tuesday,” for if the Dow Jones Industrial Average (INDEXDJX:.DJI) finishes today’s session in the green, this will be the 20th straight Tuesday it will have done so. 

That’s not the only eye-popping statistic; with Friday’s late-day recovery, the DJIA continues to build upon another record streak, the longest stretch without a three-day pullback since 1900, or 113 years ago.  And you thought this was just another trading year — these sorta stats would make Cal Ripken, Jr. or Joe DiMaggio blush.

Last Monday, we shared A Signal That Bears Watching, which highlighted a trading signal from Morgan Stanley (NYSE:MS) that has a perfect track record, albeit one with only three samples in its set. The last time a z-score of -2 was triggered (as it was 10 days ago) was April 2010 (S&P (INDEXSP:.INX) fell 13% in eight days), July 2011 (S&P fell 19% in 23 days), and October 2011 (S&P fell 10.5% in 20 days).  
The jury is still out on this one, but the clock is ticking, and the bears couldn’t wrestle the momentum from the bulls, despite the stumbles in Asia.

Then, in Can the S&P Trade to 1500 on Wednesday, we highlighted the correlation between commodities and stocks, one that has historically synched but has widened appreciably this year. I also shared an anecdotal data point about tepid growth in China as a confluence of negatives emerged across Asia. (Japan stocks were down 12% peak-to-trough last week, after an 80%+ run since November.) Again, the bulls shrugged their shoulders as if to say, “What, me worry?”

On Friday, it appeared that the DJIA streak — the 113-year-old streak mentioned above — would finally be laid to rest, but it was not to be.  In The Third Dip Cometh, we mapped levels of near-term lore, namely S&P 1634 and S&P 1600 on the downside and S&P 1655 (Thursday's high) and S&P 1687 (2013 high) on the upside.

With the S&P and Nasdaq (INDEXNASDAQ:.IXIC) on fire out of this morning’s gate, it would appear we’re in "go along and get along” mode once more. For my part, I plan to watch the first thirty minutes (to let the noise die down) and take a fresh look, in real-time on the Buzz & Banter (click here for a free two week trial). 
It'll be thin this week — lots of folks still on vacation, those lucky ducks — so keep that in the back of your crowded keppe as you size your risk on this Frisky Tuesday.

Random Thoughts:

Twitter: @todd_harrison

Position in SPY.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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