Marketview: Spillover


Fitting for this market regime to have the Dow in a new bull-market closing high and within 50 points of new all-time high amidst significant volatility and negativity. This week Italians citizens sent a message to the ECB by voting popular support to a former comedian over the establishment candidates. Markets reacted aggressively based on fears of political-protest contagion. Basically, it was a good excuse for programs to run some stops.  The market recovered most of the losses in short order leaving the $SPX unchanged for the week. Bernanke continued to pound the table on QE in his testimony before congress, in which he stated, “We do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery.” This is wonk-speak for full steam ahead. The sequester finally arrived and will slowly choke the the economy of 750,000 jobs. On paper, this should be a bull market killer, but for whatever reason, the market is treating this as another brick in the wall of worry.

Financials, consumer staples, and technology saw most of the selling pressure this week while consumer discretionary, healthcare, and utilities had the best performance. Overall, the rotation favored risk-off.  The market is clearly looking for fresh leadership now that financials have tapered off. The utilities sector, from a technical perspective, looks as though it wants to break higher. A bullish turn for utilities would be a significant concern for bulls.

The Nonfarm Payrolls report on Friday may be a catalyzing event. The market has a tendency to trade directionally into the report, so be prepared for the reaction to the news to end the move. As dangerously close as we are to 52-week highs the potential to go “over-the-top” and have everyone punchy and chasing momentum up to 1560 $SPX is still very real. At the same time, the intraday ranges are expanding, which I warned about this for weeks as a potential sign that the rally was ending. Significant $USD strength is back and has acted as cold water on equity rallies in the past. I do not have a clear conviction about the market. The MAMOx is still skewing bullish even after the “Italian Job”, so there is a clear lack of motivation for overweighting the short side. I also do not think this is a time to be super aggressive with new long positions. The best play is to stay disciplined, tighten up your game, be very selective, and honor your risk parameters.

Winners: $AMGN, $BAX, $GILD, $HD, $LOW, $DIS, $NWSA, $EXC

Losers: $FCX, $BHI, $APC, $DVN, $MS, $GS, $C, $AAPL



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