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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Don’t Fall Asleep

Over the past few weeks I have written that stocks seem “tired” or “in need of a pullback or consolidation.” Remember, stock market digestion can occur two different ways; one by price declining 2-5% or price simply moves sideways for an extended period. Right now, it looks like we are getting the latter as the S&P 500 has essentially gone nowhere for more than two weeks.

While all this boredom was occurring, we had a weak employment report, Russia/Ukraine cease fire signed and broken and QE Europe announced by the ECB, certainly lots of news to get stocks moving in some direction if they were ready. Eventually, the market will begin to move again with some significance and I would not be at all surprised if the first move fakes out the masses.

On the sector front much has changed over the past month when I had lots of trouble finding sectors that looked appealing. Now and maybe even more so in another week, most sectors look attractive in one form or another. While banks and energy are lagging and struggling, almost all other sectors look like they want to resolve higher.

I have spoken a lot about my bullish take on long-term treasuries for most of 2014 given the continued sub par economic growth conditions. Recently, however, bonds have had their issues and may need more weakness before the next rally can take hold.

I am keenly watching gold for signs of reversal and I think the shiny metal is getting closer, but as with bonds, it needs some work on the downside before a big rally begins.

Finally, there is this little company in Cupertino CA with the same name as a popular fruit that is unveiling its 6th iPhone any minute. Will the market care?

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Treasuries Sneak Quietly into Favor

As you know, I have been a treasury bond bull almost all year, putting me squarely in the severe minority camp. 2014 began with the masses all forecasting much higher interest rates across the spectrum. Astute investors know that the masses are usually wrong, especially at major turning points.

Jeff Benjamin from Investment News continues to listen to my usually contrarian side of investing and wrote a great article which you can click on below. Keep in mind that this market has rallied tremendously and is certainly due for a pause or outright decline at some point sooner than later. The easiest money has already been made.

Treasuries Sneak Quietly into Favor

In a few minutes Janet Yellen speaks at the Fed’s annual summit from Jackson Hole Wyoming which happens to be one of the greatest ski resorts on earth. People say they go for the winter, but stay for the summer. Anyway, unlike her predecessor who used Jackson Hole to lay the ground for further QE, Yellen is likely to say absolutely nothing meaningfully new.

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“IF” – Something Ain’t Right

IF the employment data are improving…
IF retail sales remain strong…
IF the Fed is tapering because the economy is doing better…
IF consumer sentiment is constructive…
IF shipments at Port of LA see largest increase in 7 years…

IF, IF, IF…

Then why is the most economically sensitive bond’s yield falling out of bed like something dark is lurking?

Modern Day Cold War?

Geopolitical news now dominates the news cycle with nothing more front and center than the sudden and disturbing turn of events in Ukraine. It’s hard to believe that after spending $51 billion to showcase Sochi and build goodwill throughout the world, Russia has effectively hit the delete button on the whole winter Olympics with aggression in the Crimea. Is an invasion of the Ukraine next? The odds are probably 60-40 in favor. It’s something that really makes you scratch your head, not so much their actions, which are bad enough, but the incredibly poorly timing. Olympics and G-8 Summit all in your newly created destination resort have now been reduced to nothing more than a footnote. Is this a prelude to a new modern day Cold War?

World markets will likely open sharply lower on Monday with gold, the dollar and treasury bonds all expected to rally as safe haven plays. Is the bull market over? Not by my count. Is this the beginning of the long awaited 10%+ correction? Possible but not probable. Without any market action yet to factor in, this should be just another routine and healthy pullback to buy unless Putin really goes off the deep end. I will be keenly watching how the leading sectors behave this week as we head into the February employment report on Friday.

Speaking of Putin, I am sure every psychologist and psychiatrist on earth would like to examine him and his mental state for the timing of this action. I don’t think the action itself is totally surprising since he already knows that the U.S. and Europe will sit idly by as our interests are not at risk. Sure, there may be some economic sanctions, but I don’t think Putin really gives a hoot about them. He seems intent on rebuilding some facsimile of the old Soviet Union.

After President Obama warned Syria’s Assad against using chemical weapons on his own people and then double warned him and perhaps even triple secret warned him, what happened? He gassed his own people without even a single repercussion from the almighty United States of America. So it’s a pretty safe assumption that Putin isn’t really worried about America or Europe getting involved against Russia.