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.
Click here to read the article
0 Comments
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. 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. Looking back on 2013, many of the economic and political themes seemed familiar: a weak economy. Growing income inequality. Gridlock in Washington. Partisan wrangling over fiscal policy. But others, like the disastrous rollout of the Affordable Care Act HealthCare.gov website and the government shutdown, were new or at least revivals. Below are 10 charts to illustrate a depressing first year of President Obama’s second term: Click here to read the article
I have covered a lot of data and a lot of terms, many of them foreign to average investors. The charts in and of themselves don't seem so alarming. So what is the problem? The velocity of money is a term of art. It is nothing more than GDP divided by the money supply. It is a proxy for how fast money turns over in the economy. You get your pay check and buy groceries, the grocer pays rent on the store, the landlord pays interest to the bank, the bank lends money to a borrower wanting to buy a new car. The longer QE goes on, the more difficult it will be to find the right balance. I listened to Janet Yellen's testimony at her confirmation hearing. It did not inspire confidence. Her comments were consistent with an academic review through the "rear view" mirror rather than a look ahead in an economy where giddy investors are already paying billions and billions for unprofitable companies whose future profitability is by no means assured; where multiple offers are being made on real properties in some housing markets; and, where analyst upon analyst is calling for the Dow Jones and Standard & Poor indices to carry on to ever higher levels at expanded earnings multiples calling the current market "inexpensive". In summary, we expect that this correction will magnify, even if it is short-lived. We say this despite the seemingly optimistic snap-back rally today (November 8). Today’s rally seems to be spurred by the unemployment report, and by bottom-fishers. But we expect selling to return next week. A probe below support at 1730 would likely cause SPX to test the 1700-1710 area. That would certainly cuase some consternation amongst the recently complacent bullish community. But unless the term structure of the VIX futures turns negative, this is likely just a correction and not the beginning of a bear market. The S&P 500, as well as the NYSE Composite, Nasdaq and Russell 2000, are again at the overhead trendline resistance that halted their last three short-term rallies. They are overbought above their short-term 50-day moving averages to a degree that also suggests a short-term top is at hand. And investor sentiment as measured by the weekly poll of its members by the American Association of Individual Investors (AAII) jumped to 49.2% bullish and only 17.6% bearish this week, entering the warning zone of too much optimism, perhaps due for a pullback to reality. The CEO was Terry Lundgren of Macy's (M), the nation's second-largest department store chain, with 850 outlets throughout the U.S. and 90% of the company's revenues coming from those Macy's stores, which serve middle-class Americans. (High-end retailer Bloomingdale's accounts for 10% of sales.) I generally find Mark's views insightful and see nothing wrong with buying fairly cheap U.S. large caps. But this is advice, not Ned Davis Research's (the firm has a more positive view on equities). I do not believe that the indicator is flashing a red 'SELL' signal. Actually, I believe that the indicator is likely to fall back into safer territory in the coming months even in the absence of market declines: Now that stocks have finally started to pull back from record highs investors are probably asking themselves, 'is this a standard correction or something more than that?' I believe we are in the process of forming a major top and here's why: |
It's always a good idea to keep some good articles, at least I think they are good for reference, so I can go back and read them later.
Archives
July 2014
Categories
All
|