Bears Taking the Ball

Monday saw the not so unusual weakness we have seen lately. However, Tuesday did not see what has become the typical bounce back since the stock market last bottomed in Q1. While I don’t want to assign too much emphasis on one single trading day, especially when it’s in my best interest, perhaps the market’s character is beginning to change. I continue to look for a bull market pullback in the mid to upper single digits.

So far, price, the final arbiter, has done nothing wrong in most of the major indices although I would argue that the S&P 400 and Russell 2000 have started rolling over. While semis continue to move sideways, banks have broken down from their range and hard. On the flip side, high yield bonds have had an awakening and are now at all-time highs. That’s one of the reasons I don’t think the decline could become a full fledged 10% correction. Liquidity remains strong.

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Can the Bears Make Any Move?

While the Dow declined almost 200 points on Monday the other indices were down much less with the NASDAQ 100 closing higher, a good sign for the bulls. Overall participation was poor and the defensive sectors were hit the hardest which was little bit of a head scratcher. As I mentioned yesterday, this week is the weakest week of the year on a seasonal basis. It is also another down Monday with an opportunity for an up Tuesday. I mention this because since the market’s Q1 bottom almost every down Monday has been followed by an up Tuesday. If the bears finally make a stand and repel what looks to be early morning strength, that would be a tiny clue that the market’s character is changing, I remain in the pullback camp for the next few weeks as the window of opportunity is now open for some short-term weakness.

There are many short-term opportunities right now in gold, bonds and the euro. And all with the Fed beginning a two day meeting. Rates are going up 1/4% tomorrow.

That’s it for today. I am on the train to NYC to join CNBC’s Squawk Box at 8am followed by a full hour with the good folks at Yahoo Finance on their Midday Movers show.

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Junk Hanging In While Pullback Begins

This post is going to be short as I am planning on writing my special Fed piece as well as a full Street$marts before I head to New York City tomorrow. Nothing new to report. I remain negative for the next few weeks or so as the window of opportunity for a mid to upper single digit pullback has opened.

I have written about the split market and small warning from the NYSE A/D Line, however high yield bonds are hanging in nicely, at least for now, as you can see below. Sector leadership has been downgraded to neutral across the board.

Nothing new on the gold bottom. The metal saw its low in August while the stocks saw theirs this month. The longer gold doesn’t breach the August bottom, the more likely it holds.

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And FINALLY, the Dow Rings the Bell

Well folks, with the Dow Industrials finally scoring fresh all-time highs, we have every major stock market index plus all four key sectors seeing new highs since the bottom of the Q1 correction. My forecast is now complete. I can’t count how many times people told me that a new bear market started or this time I was going to fall flat on my face. Don’t get me wrong. I fall on my face plenty times. I just keep getting up.

As the Dow has raced higher this week, the market’s foundation has continued to weaken. There’s nothing new on that front, only that the split market with so many stocks making new highs and new lows has worsened. It’s not healthy. That doesn’t mean the bull market is over because I don’t think that’s the case. I do think stocks are in for a pullback.

If we do see a pullback, the most telling thing may be how the defensive sectors behave. Right now, utilities, staples and REITs could go either way. High yield bonds have been quietly strong but no stronger than many floating rate or levered loan funds. The rest of the bond market has struggled. While the NYSE A/D Line has been powerful all year, it’s been lagging on a short-term basis all month.

Finally, and most importantly, price has yet to trigger any indication of impending weakness. That’s what I will be looking for over the coming week or so to take action.

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Buy Yom Kippur But Participation is Waning

As the Jewish holiday of Yom Kippur is here, so ends the seasonal trend of selling Rosh Hashanah and buying Yom Kippur. It worked out very well this year, if you did the exact opposite! Rosh Hashanah was the most recent little low and stocks quietly rallied right through to Yom Kippur.

The Dow Industrials and the S&P 500 have reasserted themselves while the Russell 2000 and NASDAQ 100 have lagged, not exactly the healthiest backdrop. In sector land, banks continue to be weak and tiny bit concerning, especially when bond yields have rallied which is usually a tailwind.

High yield bonds have behaved reasonably well but the NYSE A/D Line has finally started to show some signs of deterioration and weakness. This condition can persist and not matter for three months or 23 months. It’s not a timely indicator, but it is very important.

Even though stocks have rallied of late, the internals have not kept pace, let alone lead. The short-term concern I have been writing about remains in place.

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Hindenburg, Titanic, OH MY!

As I did my usual weekend research and overview I am even more convinced that there is valid reason to have some short-term concern. By short-term, I am looking at the next three to five weeks and nothing more than a single digit pullback, worst case. Lots of little things have ans continue to pop up to go along with the negative seasonal headwind this time of year. However, the real and nasty bearishness of September has been muted by the bull market as I wrote here.

While price action in the major indices continues to be strong and price is the final arbiter, there are a number of secondary things that warrant attention. You have heard or read about the “dreaded” Hindenburg Omen or Titanic Syndrome. Those are two stupid names for a market condition that’s not as deadly as the name suggests. In essence, they are triggered when there is a split market, meaning lots of stocks making new highs and new lows along with a few other rules. Analysts look for clusters of these signals to signal weakness in stocks. While their track record is a little above average people love to cherry pick and highlight triggers at the bull market peaks of 2000 and 2007.

Given what I wrote, I still remain very confident that the bull market remains alive and reasonable healthy. More all-time highs should be in order next quarter and into 2019.

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