Bears Knocking on Door Again

The major stock market indices are under pressure for the second day in a row, potentially threatening to close below last Friday’s low which is a line in the sand I spoke about on Monday. We will see what happens after 4pm. The selling continues to look orderly and there is not much internal damage being done to the market so far. Semis and banks concern me the most as the bull market can survive without either but not both. Most of the other sectors are pulling back as you would expect, but the defensive groups telecom, staples, utilities and REITs are firming. High yield bonds remain solid but that can change quickly.

The currency market has probably seen the most action with the dollar seeming to put in a low on Thursday. After an 8% decline since December, there is a lot of room for a bounce. That means that currencies like the Yen, Euro, Loonie and Aussie should see weakness, possibly significant, over the coming days or weeks. That would also mean a soft patch in energy prices.

Lots going on right now and volatility is on the upswing!

If you would like to be notified by email when a new post is made here, please sign up HERE.

If you would like to be notified by email when a new post is made here, please sign up HERE

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.

If you would like to be notified by email when a new post is made here, please sign up, HERE.

If you would like to be notified by email when a new post is made here, please sign up HERE

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…

If you would like to be notified by email when a new post is made here, please sign up, HERE.

If you would like to be notified by email when a new post is made here, please sign up HERE