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The Bears' Last Dance With Mary Jane


Shorts cling to a technical level as earnings approach.

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

It's Turnaround Tuesday in the City of Critters as traders openly wonder which Tuesday will step up to claim it's fame; will it be the nonsensical notion that the second day of our five-session set tends to reverse the prevailing trend, if only for a day, or will we revisit that freaky streak when the Dow Jones Industrial Average (INDEXDJX:.DJI) finished higher twenty straight Tuesdays weeks?

2013 has been a streaky stretch on a few fronts -- my P&L included. The venerable Jeff Saut of Raymond James was asked yesterday whether the DJIA "buying stampede" that began with the back-to-back 90% Upside Volume Days on December 31, 2012 and January 2, 2013 ended when we saw the mirror image, 90% Downside Volume Days on June 19 and 20 of this year, along with the series of lower highs. Jeff's response follows (emphasis mine):

"The answer to that question remains a resounding NO since the Dow Jones Industrial Average has still not experienced four consecutive down sessions this year. Indeed, it has been the most remarkable upside skein I have seen in over 50 years of stock market observations with said stampede now at session 129!"

Jeff has targeted mid-July as a potential "timing point" for the first meaningful decline of the year to commence-July 11 and 12 as minor timing points and July 19 as a major timing point (I will note these time horizons were also flagged by Jeff Cooper, who has an uncanny knack for nailing such turns).

Potential catalysts in Jeff's view include Chairman Bernanke's speech on July 17 in front of the House Financial Services Committee, and July 18 when Big Ben delivers his second day of testimony before the Senate Banking Committee, along with a Q&A. And of course, between now and then, we'll have a boatload of earnings to digest and outlooks to assimilate.

Time and price, price and time; while the spinning wheel continues to land on green-absent the stretch between May 22's outside day and June 24 reversal off the lows, or 7.5% from the high print (S&P (INDEXSP:.INX) 1687) to low print (S&P 1560)-most of the price action is during the overnight session, which is thinner (easier to move) than regular market hours. I'm not the first person to make this observation-I believe Zero Hedge flagged this dynamic long ago-but it is curious, if nothing else.

I cleaned up our Danger Zone chart below as three of the four resistance zones-horizontal resistance at S&P 1600, the 50-day at S&P 1627, and the downtrend of "lower highs" at S&P 1630-have been violated, and past resistance morphs into future support.

Does that "matter" given the context of extremely thin holiday volume? Only if it fails, my friends. Either way, the Mother Ship resistance is the underbelly of the broken uptrend in place since November 2012. That is the bears' last dance with Mary Jane; one more time to kill their pain, at least on a technical basis.

One step at a time as we continue to find our way.

Random Thoughts:
  • Yesterday we updated our overseas catalysts; if you missed it, here it is.
  • Historically, the bigger the rally into earnings, the higher the bar is set for companies to clear those hurdles, which is what we refer to when we discuss "field position." The S&P has rallied 6% since the June swoon low on June 24.
  • The jobs data? Better, if you believe the top line. U6 unemployment-likely a truer gauge-rose to 14.3%, or one in roughly every seven people in the US are out of work.
  • The Internet is the most deflationary invention of all time, which is great if you're a consumer but not so much if you're a manufacturer.
  • A friend of mine, whose market view I respect, shared with me the following observation:

    "We should learn something from the unfortunate Asiana crash. The problem may have stemmed from an improper glide slope which resulted in the plane expecting the runway to be 25 to 50 yards lower than it was. What happens if the Central Banks attempt to land QE and have the wrong glide slope? The Asiana pilot only had 43 hours in the 777; Central Bankers have zero -and have never landed QE."

    It's an interesting analogy; apt yet thus far unknown. While I can't speak to the particulars of the plane crash, I agree we're in uncharted water in terms of winding down this grand financial experiment. The ability of central bankers to navigate multi-linear macroeconomic crosscurrents with a razor-thin margin for error with the entire world watching will be no easy feat.

    Timing, of course, remains elusive; while folks are speculating that we'll see tapering in September, the Federal Reserve continues the "he said, she said" rhetoric while leaving themselves with data-dependent "outs." I don't blame them; if I were flying that plane, I would want as many options as possible as well.

    In between then and now, we'll have a boatload of earnings to digest, starting in earnest with Wells Fargo (NYSE:WFC) and JPMorgan (NYSE:JPM) on Friday morning and continuing the next few weeks. The reaction to that news will certainly matter more than the news itself.

Twitter: @todd_harrison

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