Marketview: Rejecting the Acceptance

The markets were flat this week after pulling back 20 handles off rejected new high prints.  While there is merit to the notion that we are at the upper side of a range bound market, the thesis of anticipating very choppy market action favoring the upside is proving to be the correct course.  When something is working, it’s best to stay with it until it stops.  Many traders and investors are still unable to come to terms with bullish price action.

First up, some real talk.  The theme of this rally has been less the traditional wall of worry and more the abyss at your heels.  If we start to realize the problems with the market from a fundamental perspective there is no bottom.  The positives have always been both fleeting and subjective and the negatives have been enormous and real.  The fact also remains that while the positives are largely subjective (mainly at the whim of a man with a beard), the negatives are also mostly immaterial if the positives are counted as real.  All the while, the market marches higher.

Let’s start with some positives.  Markets made a new uptrend high accompanied by an all-time high in breadth.  This alone should be enough to count the market as healthy.  The Fed minutes signaled that the doves are in full control and are ready to take action.  Bernanke also wrote a love letter to Darrell Issa letting him know to “chill out” and that “we got this.”

The negatives include most of the high frequency economic reports missing estimates, most recently Initial Jobless Claims coming in slightly higher than expected.  China is basically a bid-less market with the $SSEC hitting the lowest level since March 2009.  I recently conceded that the $SSEC to has decoupled from the $SPX, but my proxy $BIDU was also off 12% this week.  Treasuries were up while the $SPX was flat, although it appears to be just retracing the recent move lower.

On deck we’ve got two big events.  First the Jackson Hole symposium on August 31 where Bernanke, Draghi, and Lagard will all speak (!).  The second being the September 12th day of reckoning in Europe where both the Dutch general election and the German Constitutional Court decision on the ESM happen simultaneously.  The decisions reached at these events are not as important as how the market reacts to them.  This will be critical to assessing the underlying strength of the bulls (or weakness of the bears).  It’s useless making predictions but it feels like a watershed moment could be in the works.  If the market can make it through the torrid waters of Jackson Hole and/or the September European elections/referendums with uptrend in tact (above 1340) then there is a very good chance that we will try and make a run for new all time highs.  If we stall out I see a continued range bound situation (down to 1260) without a new tragedy emerging as the increasingly stale catalyst of Eurogeddon is wearing thin.

Winners: $LOW, $FCX, $BMY, $UNH, $AMZN, $EBAY, $CSCO

Losers: $HPQ, $DELL, $INTC, $BA, $CAT, $KO, $EXC

Note: Watch for the healthcare sector to become the go-to safety trade for those concerned about September volatility.


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