Bulls Step Up… Kinda Sorta

What a great day I had in New York with my friends at Yahoo Finance and Fox Business. In all, there should be five segments posted over the coming week. I began the day at Yahoo with Jeff Macke doing a piece called The Rally Has Begun and Here’s How to Play it. Click on the link and let me know what you think. This was the “calmest” of the three segments!

Changing gears, here are some comments from recent action that dovetails nicely with the Yahoo piece.

A few days ago, I discussed how the stock market was oversold in the short-term and due for a bounce, but that a better intermediate-term low was probably near here yet. With a wicked reversal on Tuesday and follow through on Wednesday, the bulls drew a line in the sand and stepped up. This action was important in preventing prices from snowballing lower. Stock market behavior around tax day hasn’t been that kind to the bulls historically, so it was good to see the tide stemmed.

Several things continue to concern me looking out beyond a few days or weeks. We still have not seen the fear index (VIX) even pop above 20, let alone show real despair. Over the past year and change with almost  no downside, the VIX spiked north of 21 at bottoms. Treasury bonds continue to make new highs for 2014 and even closed slightly higher today when they should have been down 1%. Whether it’s looming trouble in the Ukraine or a slowing economy, it’s not a positive for stocks.

Finally, sector leadership has viciously rotated and the new leaders are indicative of the final stage of a bull market. Energy, REITs, staples and utilities continue to push higher.

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Media Day

I am heading to New York to first visit my friends at Yahoo Finance and their Breakout show with Jeff Macke. By week’s end, they should have 2-3 segments created on their website from our discussion.

After that, it’s on to Fox Business to spend 30 minutes with Maria Bartiromo on her new show Opening Bell. I am scheduled to be on between 10am and 10:30am discussing a wide variety of topics.

Although I hate the pre-dawn wake up call, I do love media day in the city and I am really excited to spend an extended period with Maria.

Stocks Remain in Pullback Mode

With the major indices down 4-8% I am once again getting questions whether the bull market has ended and a multi-year decline is unfolding. I don’t think so.The New York Stock Exchange Cumulative Advance/Decline line recently scored an all time high. When bull markets end, we typically see this indicator peak months, quarters or even years before the Dow and S&P 500. The same can be said of the high yield bond sector. Bear markets are usually associated with restrictive monetary conditions and excessive valuations. It’s very hard to argue we are seeing those right now.

This decline continues to look like a pullback, meaning less than 10% in the Dow and S&P 500. It will end when the weaker bulls give up hope and thrown in the towel, something that has not happened yet. Sometimes that takes a few weeks while others it takes months or even quarters. Remember, my 2014 forecast called for a digestive type year like 1992, 2004 and 2007. That’s what we have seen so far.

Stocks are very oversold in the short-term and on their way to oversold in the intermediate-term. However, as we saw on the way up, overbought and oversold can get more overbought and oversold until a reversal takes hold. Just watching the volatility (fear) index, VIX, breach 20 should give us a hint that the decline is coming close to the end. We have already seen volume in inverse ETFs begin to spike which indicate that investors are running for downside protection.

What’s making headlines right now is the veracity of the decline in the former high flying market leaders like biotech and Internet. Those sectors led on the way down and I am keenly watching them for signs of stability and life. I am also watching them because we now own sizable positions in our sector program. It’s too early to tell if they have peaked for good, but once the market bounces, these should rally hard.

It doesn’t look like the stock market has hammered in a good bottom yet. The typical pattern would see a rally that lasts more than a day or two followed by another decline below the previous low. Today was only day one of a rally. Aggressive and nimble traders can look to sell a 1% rally and try to buy again at new lows, but that should only be contemplated for traders who can sit and watch and have a plan. Otherwise, there should be a better buying opportunity this quarter. Investors continue to hide in consumer staples, utilities and REITs on the equity side and my favorite investment that everyone hates, long-term treasury bonds which we happily have a big position in our global macro strategy.

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Market stems sell-off but volatility is here to stay

Thanks for the quote Jeff Benjamin!

Click here for article

 

Market stems sell-off but volatility is here to stay

Advisers agree investors need to stay calm and avoid knee-jerk selling

By Jeff Benjamin

Apr 8, 2014 @ 11:39 am (Updated 5:39 pm) EST

Equity markets, S&P 500, Dow Jones Industrial Average, advisers, market performance
Bloomberg News

The short and sudden streak of market volatility took a breather on Tuesday as traders took advantage of pullbacks by some of the higher-beta stocks. But financial advisers and market watchers are still telling investors to remain buckled in because the volatility probably isn’t over.

“I think this remains a normal and healthy bull market pullback of between 4% and 8%,” said Paul Schatz, president of Heritage Capital. “This bull market is old and wrinkly, but it’s still alive and well.”

Leading into Tuesday, a mildly positive day for stocks, the S&P 500 was coming off a decline of nearly 3% after hitting a new all-time high just two trading days earlier.

Like the large-cap dominated S&P, the Dow Jones Industrial Average also suffered a decline of only about 3% over a few tough trading days.

The bulk of the recent damage was suffered by the Nasdaq 100 and Russell 2000 indexes, both of which are heavily exposed to the higher-beta technology and smaller-cap stocks.

(See also: Bull market intact after “good flat” first quarter, but changes afoot)

“The momentum sectors peaked first and took it on the chin, but the large caps are holding up well,” Mr. Schatz said. “This is a routine and healthy pullback that will lead to more all-time highs this year.”

Five years into a bull market run and on the heels of a 30% gain by the S&P last year, it is not unusual for investors to get a little nervous when volatility picks up. But the general mood among the pros is that now is not the time to take money off the table.

“It’s been a year and a half since we’ve had a pullback of at least 10%, so even some of my clients with cash on the sidelines are getting cautious,” said Mark Stancil, a portfolio manager at French Wolf & Farr Investment Advisors.

“From an advisory perspective, this is different than 1999, when folks couldn’t get that last dollar invested fast enough,” he added. “Right now, if we saw some further pullback, I would view it as an opportunity to deploy some assets.”

Theodore Feight, owner of Creative Financial Design, said the recent stretch of market volatility is right on schedule.

“We’re in the second year of a president’s second term, and that usually represents a slightly down or flat year,” he said. “Right now, I’m trying to decide if I want to do some tactical allocations to the emerging markets and Europe, which have seen some improvements in the last 60 days.”

Meanwhile, Mr. Feight said his clients have not shown signs of nervousness, even after he installed a program that lets them measure performance on a weekly basis.

“Some say they like it, but others say they don’t need to see the performance that often,” he said.

The weather that got so much of the blame for the economic slowdown in March could be the boost the market needs heading into the summer months, according to Mr. Feight.

“I’ve been telling clients that between the added costs associated with Obamacare and the weather, the markets are going to be down,” he said. “But the change in the weather could drive people back out to the stores for shopping.”

The brief market pullback looked more like opportunity than risk to Jack Rivkin, chief investment officer at Altegris Research and Investment Group.

“To me, the high risk is on the fixed-income side as opposed to the equity side,” he said. “I don’t see any signs that the economy is actually rolling over to a very low or negative growth rate, and I’m not seeing anything that has me believing we’re on a different path than we were a week ago or a month ago.”

Jeff Benjamin covers investment strategies in his award-winning column, Investment Insights, and he isn’t afraid to roll up his sleeves and get under the hood of any form of investment product aimed at financial advisers.

 

U-G-L-Y Day on Thursday

The stock market had a very rough day on Thursday with all of the major indices breaking down below all short-term support levels for the chartists out there. There is no other way to characterize than UGLY. Keep in mind, however, that so far, all we have seen are 3-6% declines. It feels much worse because we saw two large down days over the past week, the likes of which we haven’t seen all year, including the January pullback.

On the sector front, all of the old leaders have taken it on the chin and have been in gear to the downside. New leadership has emerged from REITs, utilities and staples with energy, industrials and materials hanging in impressively so far. This continues to look like the market rotating to the next and perhaps final stage in the five plus year old bull market.

I haven’t said this in a long time,  but Friday is a “key” for stocks. Early weakness is better than strength as long as selling does not accelerate during the day. If we see a weak opening that firms during the day, that will go a long way to stemming the tide for the bulls and setting up a potential bounce next week. On the flip side, another day of torrential selling sets up some rather nasty and dark scenarios…

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Bull market intact after “good flat” first quarter, but changes afoot

Thanks for the quote Jeff Benjamin.

http://www.investmentnews.com/article/20140331/FREE/140339990#

In a three-month stretch of extreme winter weather, unexpected geopolitical unrest, a Federal Reserve chairmanship transition, and a continuing sluggish economy, investors should be happy with a 1% first-quarter gain by the S&P 500.

In essence, even without a lot of good news during the quarter, the financial markets proved resilient enough to keep general volatility low and fend off anything that looked like a threat to the bull market.

“The first quarter was flat, but it was a good flat, considering everything that was going on,” said Doug Coté, chief investment strategist at ING U.S. Investment Management.

“The good news during the quarter was a lack of drama out of Washington on the budget and the debt ceiling, and the Fed transition went smoothly,” he added. “The stock market is still basically at an all-time high, and it looks like it is shrugging off all the bad news.”

(Don’t miss: Investors scramble out of ETFs focused on U.S. Treasuries)

The year’s first quarter, which officially ends Monday, was nothing if not an endorsement of diversification, according to Mr. Coté.

He cited the 8% gain for long-term U.S. Treasury bonds as a case for being fully invested and fully diversified, and not just defensive.

“I’m telling investors to get fully allocated to broader global markets, and that includes bonds as well, which have been a big surprise,” he said.

But even as the markets appeared generally calm during the quarter, there was enough volatility to suggest the bull market is transitioning into a more mature stage, according to Paul Schatz, president of Heritage Capital.

With that transition, he is expecting sector leadership to be coming from utilities, energy, consumer staples and semiconductors.

“We saw the volatility beneath the surface affecting the high-beta market leaders like Google [Inc.], Amazon [Inc.], and biotechnology stocks,” he said. “We are slowly transitioning to the last phase of the bull market, but that doesn’t mean it won’t last for another year or more.”

(Don’t miss: The perfect storm: Why alts make sense now.)

Mr. Schatz also saw significance in the quietly surprising performance of longer-dated Treasury bonds.

“The performance was not the result of a fear trade, but it was driven by the perception that the economy was slowing,” he said. “The data started coming in and that manifested itself in the form of rates going down and the Treasury prices going up.”

If investors are feeling a little let down with a 1% gain on the S&P, it could be attributed to a hangover from last year’s 30% gain, according to Dick Wolfe, managing director at Saddle River Capital Management.

“I don’t think first-quarter earnings will be as bad as people expect, and I think second-quarter earnings will be even better,” he said. “As fundamentalists, we’re looking at earnings, and I’m looking for a positive year,”

John Gugle, principal and co-owner of Alpha Financial Advisors, is subscribing to the theory that things are still better than they might appear to be, even with a flat first quarter.

“My initial takeaway is that unforeseen global events like the situation in Russia and Ukraine had an outsized impact on the markets because earnings growth and Fed tapering are already priced in,” he said. “We would have had a pretty decent quarter if Russia had not gobbled up Crimea and threatened Ukraine.”

Jeff Benjamin covers investment strategies in his award-winning column, Investment Insights, and he isn’t afraid to roll up his sleeves and get under the hood of any form of investment product aimed at financial advisers.

It’s All Negative

It was an interesting reading weekend. Everything I read was negative about the stock market, which is very unusual. Bulls became bears and bears were beating their chests. Not a single piece was positive. After last Friday’s market drubbing, the bears would normally come out, but so would the “buy the dip” bulls. And yesterday, it only got worse. When I saw newsletter writer Dennis Gartman say he got “scared” out of stocks, I began to believe a low was close. This guy is one of the better contrarian indicators when it comes to stocks so it usually pays to be opposite.

The highflying biotechs, internets and Nasdaq 100 started this pullback and Monday was the first glimmer of hope for at least a short-term rally. Today is Tuesday, which can be Turnaround Tuesday and the day is VERY key.

Lots of the same questions regarding the bull market ending. My thoughts remain the same. The bull market is old and wrinkly but very much alive. The typical warnings signs are simply not in place. The current decline looks nothing more than the usual and healthy bull market 4-8% pullback.

CNBC’s Squawk Box Monday at 6:30 AM

I am excited to be with Joe, Becky and Andrew on CNBC’s Squawk Box on Monday the 31st at 6:30 AM. We will be discussing the markets, the wrong way Fed and the latest comments from Putin regarding the Ukraine.

There should be a new issue of Street$marts out later on Monday.

Enjoy the rest of your weekend. I am heading to my 6 year old’s very loud and chaotic birthday party. Too bad they don’t serve adult beverages with laser tag.

It’s going to be a very tough battle against the Spartans from Michigan State, but GO HUSKIES!!!

The Story that Never Ends

Almost two weeks ago, I published this piece about PIMCO and Bill Gross.

Since then, many news outlets continued reporting about the major problems inside PIMCO and the challenges Bill Gross faces. Thanks for the various quotes.

PIMCO’s Got Bigger Problems than the Tabloid Drama We’ve Been Reading about Lately

Some Still Wary on Gross’ Shakeup at PIMCO

More Troubles for PIMCO in Wake of El-Erian Exit

Advisers Ratchet up Scrutiny of PIMCO

 

Routine & Healthy Consolidation in Play

Last Friday, we saw the S&P 500 tick at all time highs for a few seconds. That’s anything but unexpected and certainly not newsworthy. What was “different this time” was that it was the only major index to score new highs before they all reversed sharply to the downside. That made calling for an overall market pullback fairly easy.

Over the past few days, the high flying, momentum driven tech stocks, like Google Netflix and Amazon have come under strong pressure, following in the footsteps of the biotech group which has fallen sharply since mid February. This type of action is usually seen near the end of routine bull market pullbacks (3-7%) and not at the onset. The leaders are typically thrown out after selling hits other areas of the market. Impressively, the stock market has been resilient in the face of than overwhelming economic data and some worrisome geopolitical events and news in China, Middle East and Ukraine.

Bullishly, stocks continue to hover around their average price of the past 21 days or one month of trading. At this point it looks like the next 2-3% move can be faded, meaning that whichever direction the market goes in the short-term should be temporary and will then go in the exact opposite direction.

Longer-term, the bull market remains alive and well, albeit old and wrinkly. The ingredients normally seen before a bull becomes a bear remain nonexistent, in spite of what may be said by the pundits. In fact, I don’t even see the usual caution signs for 10%+ correction. Buy the dips and sell the rips is the strategy to continue following until proven otherwise.

Outside the stock market, I remain on breakout watch for long-term treasury bonds, our largest position in our global macro strategy. I have been generally bullish on long dated T bonds since late last year when you couldn’t find anyone who was positive.