Marketview: Bullish Conspiracy

• Posted by DynamicHedge
• on October 6th, 2012

It’s important to strive for objectivity (no one is ever truly objective) and be on the lookout for contrarian indicators.  Vantage point, situation, and current positioning can sometimes lead you to false conclusions, and the reality of the situation can be far different from your perception.  That’s why I find it amazing that the current contrarian positioning still to be bullish in the face of bearish investor and consumer sentiment.  It’s still fashionable to be negative on the economy and the future.  Part of it is the four-year Partisanship Olympics but it’s also indicative of a deep belief that the economy CAN’T get better.  Even smart and well respected public figures are floating flimsy conspiracy theories to explain away the data and justify their feelings.

Unbelievable jobs numbers..these Chicago guys will do anything..can’t debate so change numbers

— Jack Welch (@jack_welch) October 5, 2012

Things will not stay improving forever and people with a bearish outlook will eventually be able to say they told you so.  Unfortunately, this market has surprised to upside again and again and based on the quantitative, there isn’t much weakness to be found.  On the negative side a prime argument for the market rolling over is the weakness in $AAPL.  There are also some slight divergence in obscure breadth measures.  On the positive side I can point to senior indices like $DJIA making new uptrend highs and broad market breadth challenging the same highs in addition to most of our important fundamental and risk metrics showing positive signs.

The market is currently working through supply.  It will be supply alone that decides if this is an inflection point or a blip on the march higher. Some of the most prolific supply can be found in the financials.  The $XLF was the best performing sector this week but most of the activity was still well contained below the recent swing highs.  As I’ve pointed out previously, the rally will have difficulty gathering momentum to the upside so long as financials do not break out of this range.  I continue to watch $BAC as the bellwether for this leg of the rally.  If and when we work through the current supply this market will be free to surprise to the upside once again.

Most of the charts we track and market continue to point towards constructive higher prices.  Even our most sensitive spreads are still skewing positive.  Note: if we had broken down on Tuesday MAMOx would have likely flipped negative by Friday’s close.  This is our early warning signal and we will update the moment that changes.

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