Look Out Below, Thursday Edition

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The year started out at a blistering pace. The Dow up over 6%, the S&P500 up 10%, and the Nasdaq up 15% — all before Q1 even ended. Apple up 40% Bank America up almost 100%.

This pace is obviously unsustainable — it must cool down, and it will do so by either correcting in price, or going sideways and consolidating.

So far, there has been no major correction — despite repeated opportunities for one.  Futures have been under pressure the past few days, Europe has been negative 4 days in a row, the news from China has been disappointing, with Chinese manufacturing contracting.

And yet curiously, the market cannot even muster a triple digit down day.  Odd.

Across the pond, European services and manufacturing output is slowing. German PMI for March manufacturing came in at 48.1 (below expansionary expectations of 51.8). Crude is off -1%, copper down -1.3% and gold and the euro are slightly changed.

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For now, a consolidation to digest the recent gains is the higher probability outcome. Note that volume is not expanding on the pullback, often an early warning sign. When we see increasing volume during a sell off, or extreme breadth, as in 90/90 days, something more dangerous will be afoot. But until we see substantial internal weakness, we should not hold our breathe waiting for a sharper move lower.

Until then, the breakout points across major indices are your stop losses. Look for some back and filling as we digest the excess gains from the start of the new year.

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