Archives for October 2014

Stocks Trying to Keep Bounce Going

The stock market ended last week with a very nice bounce from the lows seen on Thursday and I discussed in the last update. Market internals were fine, but certainly not great, so far. At this point, the most prominent stock market indices saw yet another pullback that couldn’t gather steam once it approached 5%. While very unusual historically, this has been business as usual since mid 2012.

The most important things to watch now are how stocks behave as this bounce continues, which it should at least a little while longer as well as if the bounce takes the Dow and S&P 500 back to the old highs. At this point, for a change, I do not have a firm opinion on how the next few weeks shake out. I want to take a wait and see approach. We have more than enough longs if stocks continue to rise, but I will not hesitate to trim positions if the rally looks crummy.

As you know, long dated treasuries have been our single largest position all year in our global macro strategy and that remains the case. As stocks began to bounce on Thursday and took off on Friday on the solid jobs report, bonds did not sell off. They continue to confound the masses on good economic news and now it’s time for bonds to make new highs for 2014.

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Bears Stepped It Up

For most of September, I discussed the very negative seasonal period that ended on September 30. Remember, poor seasonals with strongly negative short-term trends from the Fed and options expiration usually just provide a headwind or accelerant to a market move already in place. The second half of September was certainly a poor showing for the bulls, which is part of the reason October began so weak.

For those who watch the charts, the Dow and S&P 500 visited their 150 day moving average this morning and are trying to bounce right now. The Nasdaq 100 has been much stronger and the S&P 400 and Russell 2000 have been downright ugly. While a small rally would be nice, it doesn’t seem like the final low is in just yet. A more likely scenario would see stocks move a little higher and then sell off once again next week or the week after to what could be the final solid trading low of 2014.

Between now and then, I will be keenly watching how the various sectors behave as well as high yield bonds. There has been much damage that needs repair before another rally to new highs begins.

At this point, the bull market is wounded, but certainly not dead. It’s time for another update on the canaries to assess the bull market’s health and I will try to get to that early next week.

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