Stock #Market Recap 05/06/13 {Video}

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Was today a healthy digestion day from Friday’s rally, or a sign of churning before we roll over?

Be sure to catch my video market recap for a full discussion, coming up after the bell.

We are finally seeing some unwinding of the very crowded defensive trade of utilities, staples, and healthcare. Thus far in 2013, those sectors have been momentum monsters. However, as you can see below on the daily chart of the sector ETF for the utes, or utilities, Friday’s relative weakness has followed-through to the downside today.

I still expect these crowded trades to unwind further into Memorial Day. It need not mean the rest of the market is topping out, though, as bulls are out in full force arguing for a capital rotation down to the cyclicals.

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There might very well be an air of eerie calm or even complacency to the tape today. But the 15-minute SPY chart, below, indicates bears have yet to do much of anything to compel us to take them seriously. Friday morning’s gap higher remains fully unscathed. And today’s action essentially has digested that move, albeit with signs of rotations underneath the surface.

Headed into the the final hour of trading, I am not expecting too many fireworks given today’s tight price range, heretofore. The main issue for me continues to be whether more stocks are permitted by the market to set up behind the leaders and sustain breakouts. There are some opportunities on the short side here and there, but as a general proposition bulls have negotiated each challenge remarkably well this year.

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At a certain point, all correlations detach and any one given holy grail of “smart money” indicators makes us all look dumb. Abby Joseph Cohen was brilliant and wildly bullish at the turn of the century, Hugh Hendry was cocky and deflationary cool-as-can-be in 2008, and John Pauslon made everyone want to short housing while eating caviar for dinner, a few years back. Within short order, all three became castigated amidst a smörgåsbord of snark.

In all forms of speculation and gambling, the people’s choice of who is a winner and who is a loser can change in a New York Minute. The long run is, indeed, very long. And that is ultimately the true test. As the saying goes, “There are old traders and there are bold traders. But there are not many old, bold traders.”

With this in mind, IBM is often seen by many (including me) as a solid broad market tell. We have looked at “Big Blue” over the years in this blog at decisive market moments. Currently, the stock is still trying to recover from a recent earnings sell-off.

As the monthly chart indicates, below, Big Blue is still consolidating its recent multi-year move higher. Bears will argue this is a negative divergence to the major averages hitting all-time or decade-long highs, while bulls will point to the fact that Big Blue may have been out in front of the move like a true leader and is merely consolidating before its next leg higher. Full disclosure, I expected the stock to cool off sideways or lower, dating back several months.

But as to the question of what the stock is indicating with respect to the broad market, I don’t know. What I do know is that at some point all correlations and tells will detach and fail, including this one.

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via xkcd