What We're Reading

Wall Street’s reaction to hotter-than-estimated inflation data suggested growing bets the Federal Reserve has a long ways to go in its aggressive tightening crusade, making the odds of a soft landing look slimmer.

After a lengthy period of subdued equity swings, volatility has been gaining traction. That doesn’t bode well for a market that’s gotten more expensive after an exuberant rally from its October lows. Stock gains have been dwindling by the day amid fears that a recession in the world’s largest economy could further hamper the prospects for Corporate America.

A slide in the S&P 500 Friday added to its worst weekly selloff since early December. The tech-heavy Nasdaq 100 tumbled about 2% as the Treasury two-year yield topped 4.8%, the highest since 2007. The dollar climbed. Swaps are now pricing in 25 basis-point hikes at the Fed’s next three meetings, and bets on the peak rate rose to about 5.4% by July. The benchmark sits in a 4.5%-4.75% range.

“There’s little room for upside i

U.S. stocks experienced their third straight week of gains, with the S&P 500 Index rising 2.6% and gaining more than 10% since Christmas Day.¹ Investors were encouraged by comments from the Federal Reserve indicating a less aggressive policy stance and a sense that trade issues may be improving. Strong outflows from stock funds have also been an important contrarian indicator that investor capitulation had reached a limit. Several market areas were standout performers last week, including industrials, retail sectors, technology and energy, which was helped by a 7.5% climb in oil prices.¹ A near -term consolidation is possible, given the strong climb over the last few weeks, but a return to December’s lows seems unlikely.

1. The Fed should remain data dependent, which should be good for stocks. Fed comments in October seemed to indicate it would continue to raise rates and sell off its balance sheet for the foreseeable future. But Fed Chair Jerome Powell walked back those comments in

As technicians battle over whether our "hated" seven year rally still has legs, I continue to return and ask myself "has anything truly blown up?".  I do personally believe the US Dollar will continue it strength and that will continue to put pressure on commodities, dividend payers and discretionary.  Financials and insurers will push higher.  Can the rest of the boat survive?  Are earnings guidance showing a 'rosey' picture of the future?  Will Trump win?  Too many unknowns for me.  This post, using monthly charts, brings me back to earth.  While I have no need to catch the absolute top, it gives me specific areas which need to be defined.  I remain cautious and yes, have numerous short positions as well as longs.  That doesn't mean, however, that I'm willing to give up just yet.  I hope you enjoy-

While the technicians usually write about the short tem, I want to zoom out a little and use a monthly chart of the New York Composite ($NYA). For those who follow my webinars, we are foll

We’ve been bulls on 30-year Treasury bonds since 1981 when we stated, “We’re entering the bond rally of a lifetime.” It’s still under way, in our opinion. Their yields back then were 15.2%, but our forecast called for huge declines in inflation and, with it, a gigantic fall in bond yields to our then-target of 3%.

The Cause of Inflation

We’ve argued that the root of inflation is excess demand, and historically it’s caused by huge government spending on top of a fully-employed economy.  That happens during wars, and so inflation and wars always go together, going back to the French and Indian War, the Revolutionary War, the War of 1812, the Mexican War of 1846, the Civil War, the Spanish American War of 1898, World Wars I and II and the Korean War.  In the late 1960s and 1970s, huge government spending, and the associated double-digit inflation (Chart 1), resulted from the Vietnam War on top's LBJ’s War on Poverty.

By the late 1970s, however, the frustrations over military stalemat

Has anything changed fundamentally or is this just a bear market rally?  I haven't heard anything from the Fed but crude oil's short covering is definitely a driver.  Ditto for retail seeing short covering ahead of tomorrows retail sales numbers.  For 'how long' is open to speculation.  Let's see what DeMark has to say.

Volatility definitely increased leading up to this weeks quadruple witching and the S&P (400, 500 and 600) index re-balancing taking place tonight after the close.  Selling the last two weeks resulted in oversold conditions in the near term charts and massive short covering at the market as every fund and investment bank bought new shares (as they rebalanced ahead of the indexes), resulted in two astounding days of back to back two percent gains.  Bulls were partying in the streets but is it warranted?   Has anything truly changed? 

Yes, the Fed has reassured investors that they have no intention of raising rates any time soon which is what everyone wanted to hear but we still have a bull market which has had an incredible six-year run so just "who" is going to buy at these elevated levels for their 2015 portfolio?

I also do not believe that crude oil (and oil/gas companies) are out of the woods yet either.  There's that pesky $OVX which is the VIX for crude oil.  Note how it's not c

Let’s take a moment and put the market’s current trading action into perspective. Earlier this year bullish sentiment reached levels not seen in years or even decades depending upon data source. Market volatility had also fallen to levels not seen in years as the market was steadily making new all-times highs. S&P 500 actually went 63 trading days without a 1% percent daily move higher or lower. A feat last accomplished in 1995. And it has been more than three years without a 10% or greater S&P 500 correction. This is four times the average duration of time between corrections. Not to mention the market shrugged off tensions in Ukraine, Ebola in West Africa, the rise of ISIS in the Middle East, slowing global growth concerns and the Fed slowly easing up on stimulus. Honestly the market had gotten ahead of itself and was in need of a cool-off period. More likely than not, that is what it is doing.

Yes, weak economic data out of Asia and Europe is a concern as they are major U.S. tradin

“Is the S&P in a correction or Bear market Mom?” is the question I received from my daughter last night. She’s been learning the stock market slowly over the last five or so years and I cringe at times with the questions she poses however no question is a bad question. I’d rather she come to me than blindly follow some pundit or supposed guru to $99/month subscription. After all, if he/she is so smart – why do they even need to charge for anything?  Just sit back and enjoy the wealth.

While the big boys and their algorithms have their calculated strategy, this is how I explained it to her in my simple, 'laywomans' terms.  In my mind big money typically buys at major supports during a correction. They sit back and salivate at an opportunity to, not buy the dip, buy buy on the cheap and define their risk.

For me, I consider the monthly 20 SMA as you can see from my prior post on the subject here.

If only a correction, one would want to see SPX bounce off of the 20month or (the line in

Markets being forward looking, I believe we're seeing a snap back ahead of this weeks Jackson Hole meeting (Aug 21-23) where policymakers will discuss at length their thinking around the labor markets of major economies, perhaps dropping clues about the path for monetary policy in the months ahead.

The spotlight will be on Janet Yellen, who will speak on Friday in her first appearance at Jackson Hole as Fed chair.

Most will recall Ben Bernanke two years ago that paved the way for an unprecedented $85 billion per month stimulus plan.

While most don't expect anything spectacular out of the Fed Chairwoman given the improvement in the unemployment rate and overall economy, I have to wonder what will happen after the air is let out of the hopium balloon.  QE is still set to end in October.  Tensions between Russian and Ukraine have sent yields lower.  Whether there is further escalation or a resolution is yet to be seen.  The economy is recovering like a limp noodle, but it is improving.  S

Is it possible we are in the early stages of an enormous secular stockmarket bull run?  We talk about this continually in Chat on StockBuz.

Since 1900, there have been four large stock market basing patterns which exceeded 12 years in length:

• 1906 to 1924—18 years
• 1929 to 1955—26 years
• 1966 to 1982—16 years
• 2000 to 2013—13 years

What prior breakouts had in common is investor behavior reflected an underlying distrust or disinterest and characterized by underinvestment in equities.  This results in a rebound that is relentless (emphasis mine), providing little opportunity to buy on pullbacks.  To put it bluntly, the distrust creates so many bears, that the inflow of bulls plows them over and with minimal pullback, they've forced to cover higher and higher...............fueling the market (my words - not in the article)

How and what caused those breakouts to sustain is a point of discussion in this Raymond James presentation  (courtesy of MarketFolly)

Also reviewed is

This from Futures Magazine briefly reiterates what we already know from last week but gives a nice overview of what's coming this week both in the U.S. and [especially] abroad.

Risk rebounds on improving global data

The past week began with disappointment stemming from Japan ’s lack of direct currency intervention and risk aversion looked probable to continue into the week. This was not the case as better than expected Australian 2Q GDP started a ripple effect culminating into a global wave of positive data surprises. Upbeat manufacturing numbers midweek out of China and the US saw safe havens soften and sent US equities soaring higher by greater than 2% Wednesday. The positive data stream continued Thursday as US July Pending Home Sales printed a much better than consensus +5.2% as compared to an expected -1% decline. Friday’s much anticipated NFP capped the data session as Private Payrolls jumped by +67k and the headline number declined by a less than expected -54k versus expectatio

Should I buy the dip? Should I blame it on lunar movements or is it another headfake? Will the Bears be punished once more and we head higher as we have in the past? Well for what its worth [which is zilch] I think we're in for a larger correction. Obviously I'm not a Economist or a Hedge Fund Manager [I wish] but I believe there are number of reasons we'll see *sell in May and go away* come to fruition this year.

• First and foremost, spiralling Eurozone debt and the additional debt they'll have to issue to bring themselves out of the immediate crisis. The PIIGS are not dead and I believe it will take months for this to fully play out as the ECB does its best to drum up support for the Euro in the meantime. This fear alone has and will send some investors to safer havens such as currencies and bonds.
• Then you've got to wonder where the ECB is going to get all of this money? Sure, turn on the printing press works but you know they're heavily invested in various markets and they c