Marketview: Top Caller Dilemma



The equity market worked through a sea of economic data this week without so much as a hint of volatility. The leading story was negative Q4 GDP. Most simply ignored this number due to the -6.6% contraction in government spending (probably fiscal cliff related). January saw the $SPX return over 5% firming up the positive feedback loop that many (including myself) have been talking about for some time. Breadth continues to make new highs along with the market, even as the broad indices work through relatively overbought conditions. The debt ceiling debate has officially been shelved until May, and most participants are looking past the negative European outlook from Davos. Sentiment has ebbed and flowed in the last couple years, but from my view, is just starting to get decent for the first time since the crisis.

Money moved into the energy sector, as well as technology, and utilities this week. Industrials, basic materials, and consumer discretionary sectors were all weak. I heard lots of comments floating around about the utility sector price-action acting as a harbinger of an imminent top, but I view this as a bounce in a large downtrend rather than a trend shift — still, undoubtedly worth monitoring.

Without question, the next bear market is right around the corner and ready to take back all current gains.  Unfortunately, we never know how much straight road we’ve got until the inevitable happens. I’d be lying if I said I wasn’t paranoid about this market: I’ve been programmed to be cautious of new highs.  For now, momentum reigns and top-calling is utterly futile. The Dow is sitting 1.5% away from all-time highs. When markets get within striking distance of a big milestone, it’s very uncommon for the barrier not to be broken. I anticipate all senior indices make new all-time highs in due time. Two legitimate warnings this week were high-yield indices falling and some mild $VIX divergence on the new market highs. The high-yield indices are due for a pullback, and I view the $VIX divergence as resolvable in time.

Winners: $DVN, $OXY, $QCOM, $DELL, $GS, $MS, $VZ, $T

Losers: $AMZN, $HPQ, $EMC, $CSCO, $GD, $LMT, $RTN, $MRK


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