Marketview: Looming Sentiment

• Posted by DynamicHedge
• on December 15th, 2012

Choppy week with very little change.  Global indices were mostly higher led by Asian (Shanghai Composite ripping) and German markets.  The Fed announced that the liquidity driving the markets will continue.  They effectively launched a new program and extended another.  In keeping with the trend of more transparency and disclosure, they even outlined the decision metrics of 6.5% unemployment and 2.5% inflation.  Bailout payments were finally authorized for Greece, which is a good thing, even if it means they’re basically receiving a payday loan to pay off their credit card bill.  Also, most economic reports this week came in on the positive side.  On the negative side, $AAPL has completely decoupled from the rest of the technology sector and has the size to take the entire market.  The deadlock in Washington continues.  It feels like the fiscal cliff has been looming over the market for far too long.

Domestic markets lost ground this week, but it was not in a broad risk-off fashion.  The characteristic of this bull market has been choppy price action and no definitive strength or pronounced weakness to the economy.  Regardless of keeping with the usual tone, there is a growing (but still lower) probability that the market will roll over.  One risk is that the slowplay on fiscal issues acts as a sentiment vacuum.  Another risk is that the market becomes aware of the consequences of reckless policy and same QE that has benefited stocks for so long becomes a negative driver.  For the time being risk assets are still favored and the long side is still a better bet, but tipping points come quick.  It’s impossible to know at this point which outcome will occur — but be on guard for a sentiment shift.

Basic material stocks were the primary beneficiaries this week, which fits in with the QE playbook.  Industrials and healthcare were the next best sectors.  Financials also held up well.  There was damage to both consumer staples and discretionary stocks, as well as utilities.

My deepest sympathies go out to anyone affected by the Newtown massacre.  There are no words to comfort those who lost a child.  A very sad day and certainly a time for reflection.

Winners: $MS, $GS, $JPM, $FCX, $CAT, $DD, $INTC, $HPQ

Losers: $QCOM, $AAPL, $HD, $LOW, $WMT, $TGT, $NOV, $SLB

Here’s a monthly chart to remind everyone where we’re at:

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