The most important take away from this report is that the long-term trend and momentum of the market remain deep in bullish territory. The markets have rallied off the February lows but are struggling to hit new highs as the financial and consumer discretionary sectors have failed to rally materially off their lows. Two areas of concern are the lack of expansion in new 52-week highs as the market nears its former highs as well as the fact intermediate-term indicators are at extreme overbought readings and suggests we should see some softness next week. My guess is that we have some choppy market action ahead before seeing new highs.
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The stock market continues to behave in an orderly way. Following the recent -6% peak to trough correction on the S&P 500 Index (SPY), it appears the worst of the pullback may be behind us for now following a sharp upside reversal late last week that has characterized so many bounces in the post crisis period. But just because the market looks like it is once again on the mend does not mean that all is well. Investors were notably rattled during what was otherwise a mild correction over the last few weeks for good reason, as significant structural imbalances continue to fester underneath the global economic surface. And the latest warning shot across the market bow has provided important lessons for what we should expect and how we might position if and when these mounting pressures finally boil over into crisis.
It promises to be an interesting year for the markets as we move through 2014. We are no longer in a phase where one can simply enjoy the ride higher in stocks, as volatility is likely to play a greater role in markets as the year progresses. Thus, investors will need to stay on guard for potential action if necessary in the event that what was once a warning shot finally evolves into a full blown engagement.
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The most important take away from this report is that the long-term trend and momentum of the market remain deep in bullish territory so talk of a bear market is highly premature, particularly given that spikes in new 52-week highs have been dominating spikes in new lows during declines. What we have is a corrective move in an ongoing bull market and we now have to decide when the bottom is in. Short-term indicators suggest the market rallies next week as we've hit levels associated with short-term lows, but a lack of fear in put-call data and a lack of strong buying suggests we may have a weak rally attempt into next week followed by a retest of the current lows to bring about more fear and anxiety associated with major bottoms.