Marketview: Untethered Price Action


An encouraging week for stock bulls as the S&P 500’s date with new all-time highs came earlier than anticipated. $AA, $JPM, and $WFC kicked off earnings season beating or meeting most expectations. A relatively hawkish FOMC Minutes got leaked to select financial institutions in an apparent administrative error that raised many an eyebrow in the financial sector. This week also saw “stores of value” Gold and Bitcoins get HAMMERED.

Rotation was decidedly end-user-centric as consumer staples, consumer discretionary, and healthcare saw impressive gains. Energy, basic materials, and utilities were the laggards if you can call the worst performing sector up ~1% a “laggard”.

As noted many times previously, sentiment among investors and consumers is impossibly low given the fact that we are at equity market all-time highs. Long-term, this has been one of the reasons to be bullish. Persistent negativity in the face of improving price action usually leads to sustainable rallies. From a long-term perspective, the bull run is not likely over by any stretch. In the short-term, trusted indicators are communicating caution even as the bull market party continues. Let’s take a closer look at this, as it has happened twice in recent memory.

First in 2010:


And again in 2011:


In both these situations, price action and market forces conspired to break discipline for those anticipating a correction. For context, the 2010 example came after the indicator went bullish in January 2009 (before the bottom was in) and stayed bullish for the entire 2009 calendar year. The sugar-high and confirmation-bias massaging associated with a price crescendo (see February thru April 2010) is especially hard to resist. The bullish thesis dismissed a few months prior becomes embraced as obvious by the same detractors. Gains seem to come easy as money flows in the direction of sentiment. This is all part of the process is passing the risk from strong hands to weak ones. The longest running con in the history of the world.

We never designed indicators that would keep in tune with every oscillation of the market. The focus is always in identifying timely useful information that keeps us on the right side of the market the majority of the time. That said, being cautious on the long side in a rising market like this is mental torture, especially for those of use who do not feel like the highs of the year are in yet. This is the feeling of discipline. We’ve been here before.

Let’s look at where we are, and ask yourself if you’d like to be adding risk now:


Enjoy the ride, but make sure your seat belt is buckled up tight.

Winners: $GILD, $AMGN, $PFE, $AMZN, $SPG, $TXN, $CSCO, $ORCL

Losers: $FCX, $CAT, $XOM, $$V, $MA, $MSFT, $DELL, $HPQ


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