Marketview: Long Tail Reminder

Short and turbulent week as the NYSE remained closed for 4-days and market participants focused on the fallout of Superstorm Sandy.  It was another round-trip week as overall improving economic reports continue to be used as liquidity points for sellers.  Bright spots were relative strength in financials and a $VIX that feels very reluctant to break-out.

This week served as a stern reminder of tail risks in the market and in life.  The NYSE closure affected traders, including us, with open positions we would have liked to close out on Monday that we were forced to hold through earnings.  The storm reminded us how fragile life can be and how easily your life and priorities can change drastically in just a few short days.  In the end the closure didn’t have a huge impact on us, but it serves as a reminder to remain vigilant about the effects of long-tail events in trading and in life.

Financials , consumer discretionary, and industrials showed relative strength.  Energy, utilities, and healthcare led the market declines.  We have seen some de-risking trades but not a wholesale risk-off trade so far in this decline.  I have a lack of confidence in a bottom forming and changing from neutral to bullish until we see such an event.  Look for consumer staples, utilities, and healthcare to outperform in such a selloff.

I remain bullish in the long-term and view this as a correction in an overall uptrend.  We got more defensive a few weeks ago when our sensitive indicators turned short-term bearish and remain so.  I’m starting to see the stage being set for a mature bull market rally as relative strength creeps into in financials and industrials.  I’ll leave the bottom picking for someone else and wait for quantitative evidence of a resumption of trend.  The market remains extremely difficult to navigate.  Anyone who tells you otherwise is lying.  Support is at 1400, 1390, and 1360.

Winners: $BAC, $JPM, $MS, $MSFT, $EMC, $LOW, $HD, $SBUX

Losers: $AAPL, $ALL, $MET, PFE, $LLY, $AMZN, $HPQ, $CVX

Chart below is $BAC reminding us not to turn our back on a late-stage bull market rotation into financials.


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