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.