Selling the Bounce

Let’s start with my conclusion and then work backwards. Nothing has changed over the past few days, weeks and even months. I still view stocks positively the farther out you go. The short-term remains murky, uncertain, questionable and any other adjective that is less than flat out bullish.

One of my chief concerns, sentiment, has begun to reset itself at least to neutral from the overly enthusiastic category. Sentiment surveys have improved as have the put/call ratios in the options market. On the flip side, stock market internals have been downright putrid. When I say “internals”, I am referring to the number of stocks going up and down each day along with how many stocks are hitting fresh 52 week highs and lows. Additionally, high yield bonds, one of my favorite canaries in the coal mine have seen five straight days of heavy selling, which is not comforting.

While it’s possible that the market pullback ended yesterday with stocks off to the races again today, I just don’t think that’s the most likely scenario. Rather, it looks like most of the major indices will remain in their trading range with perhaps one or two popping quickly to new highs. If that’s the case, I would rather be a seller into such strength than a fresh buyer.

Sector leadership is very favorable right now for future gains, with the exception of the transports, once we get by this continued period of digestion and consolidation. It’s not the time to get bearish, just to be a bit more cautious and selectively prune into strength. Better opportunities are not that far off.

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Fox Business’ Markets Now

I am going to be on Fox Business’ Markets Now on Monday August 26 at 1:00pm.

The stock market began a small bounce last week and looks to continue that move this week. Yes, it’s the unofficial last week of summer although many schools have already started and many more begin on the 26th. Volume is typically light this week, but when a geopolitical event occurs like we saw in 2011, 2010, 2008 and 2007, volume will certainly spike. I always laugh when I hear that all of Wall Street is sunning and partying in The Hamptons and that the only people left are junior staffers. Gee, I guess that means they all helicoptered back when it hit the fan. What nonsense!

It’s relatively quiet now because earnings season ended and there are no major PLANNED events until the Fed meets next month to talk taper. Don’t think for a minute that just because August ends this week, volume and volatility will return. We have the Jewish holidays very early this year, just a few days after Labor Day.

While it looks like there is a temporary ceiling over stocks at the recent highs, we could still see a decent bounce on low volume.

Longer-term, the market is still trying to deal with junk bonds entering a bear market and the relative poor performance in the semiconductors.

I “hope” to have a full Street$marts out later this week.

Enjoy the final week of summer!

Paul

Bears Still Fleeing Bonds et al

It’s been a relentless assault on the bond market and other interest rate sensitive instruments of late. Treasury bonds, mortgage backed securities, high quality corporate bonds, junk bonds, utilities, REITs have seen intense selling pressure that has only paused for a day here and there since late April. Telecom, REITs and high yield bond mutual funds all hit our sell triggers last month and it certainly feels like consumer staples mutual funds and a few more bond ETFs aren’t too far behind.

I do NOT believe the bull market in stocks is over, but leadership has and is changing.