Archives for August 2014

Monday is Bounce Day

After some normal volatility on Friday, the bulls held their own and are positioned to see some green as the trading week opens. There are two scenarios I am watching here.

The first is the lows hit on Friday. If the major indices close below those levels sooner than later, we should see some trap door, elevator shaft, immediate selling. That’s the more bearish path. Scenario number two has the market bouncing for a few days and then rolling over to revisit the lows from Friday where the bottom is quickly formed.

As I mentioned last week, the quality of the bounce is so important right now. Poor participation or sector leadership may well have more intermediate-term consequences, but if the bulls can make an internal stand, the stage can be set for Dow 17,500.

Just like with the stock market, treasuries are at an important juncture as well. They are positioned to see more upside, but that needs to be much sooner than later to stave off a multi-week pullback.

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Watching the Bounce

Thursday’s shellacking in the stock market was a bit unusual given how close in time stocks were to all time highs. As I mentioned in Street$marts, my screen was a complete sea of red except for the instruments that go up when stocks go down. As I have over said over and over and over, based on history, the bull market remains alive.

In the short-term, it looks like the best case for the bulls would be a few days of bounce to the upside followed by another decline to revisit this morning’s low or briefly exceed it this month. Then another run to new highs could ensure.

I would become a bit more concerned if stocks began to unravel this afternoon or rallied mildly today followed by an ugly day on Monday. In any case, it’s important to watch which sectors bounce the most or withstand selling pressure the best. So far, I am not heartened to see utilities and staples leading today.

On the bond front, it’s time for treasury bonds to make a stand. They have pulled back for a few days and they need to stabilize here. High yield (junk) bonds have been decimated lately, wiping out the entire gain since January. This is a serious canary in the coal mine if it’s not rectified this year.

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