Marketview: Bull Market Gets Messy

The market had a correction after breaking into new highs but still managed to close out the week on up ticks.  China slowdown chatter grew louder after $BHP and $RIO both noted that slower growth in China would reduce demand for iron ore.  This news has been brewing for some time and I think we’ve seen seen the impact reflected in current prices in the very near term.  Interesting to see that Greek CDS payments go out with a whimper.  It seems barely anyone noticed that $2.5 billion in Greek CDS payments were finalized this week.  After months of pundits spinning tales of inevitable death and destruction of the western world it seems that the world will in fact carry on.

This is where the bull market could start to get messy.  How does anyone stay bullish after this incredible run?  A couple of things to consider, first, there’s an absence of new news to act as catalyst to the downside.  Commentators will rehash the same old stories on each down tick as the reason for the price action, but at this point the catalyst for a meaningful decline is unknown and unknowable.  The market will continue to chop to the upside until something comes along to trade off.  Second, the market has cleared most of the large resistance numbers and has room to move.  Picking a top is absolutely futile.  Chopping to the upside means the market will be pressing HARD at the boundaries of support before ripping higher.  We saw this on Friday and it’s a familiar pattern.  The good news for traders is that this should lead to some two-way trading as realized ranges in the $SPX should be greater than that reflected by the $VIX.  The bad news for longer-term traders is that they’re coming for your stops and they will hit them.

There is almost nothing new to report.  Familiar sectors are still working well.  Both consumer staples and discretionary statistically have room to run.  As I mentioned last week, I believe that financials and to a lesser degree industrials and healthcare will lead the next highs in the $SPX.  I see China fears keeping the materials and energy sectors somewhat muted.  Keep in mind that oil still owes us new all time highs at some point over the next couple years.  Anything can happen with continued tension between Iran and Israel.

Check out the analogs I mentioned a while back here.  In my eyes we’re replaying either ’91, ’05, or ’10.  All of them at least squeak in new highs in the near term and all lead to significantly higher prices in the longer term.  Don’t get too fixated on them because as soon as they start to look good we’ll be onto the next one.  Gotta keep moving.

Winners: $AMZN, $GOOG, $CSCO, $QCOM, $MS, $GS, KO, $ABT

Losers: $BHI, $SLB, $APA, $NSC, $UNP, $CAT, $UTX, $AA


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