Marketview: Rough Patch


The Boston Marathon bombings opened the week on a tragic note. The subsequent manhunt for those responsible captivated the world. Monday was the worst single day performance in 9-months for the S&P 500. Gold gapped down spectacularly on Monday and closed the week down roughly 5%. Earnings season rolled on with tech giants $MSFT and $GOOG reporting decent earnings while the market punished $IBM for missing on EPS for the first time since 2005.

Consumer staples, utilities, and healthcare sectors were favored this week. Energy, technology, and industrials sold-off aggressively. There are now only four sectors outperforming the $SPX in the last three months: consumer staples, consumer discretionary, utilities, and healthcare. This is classic risk-off behavior and a definite signal for some near-term caution.

Next week the Fed gives us a break and all eyes will be on $AAPL earnings. The stock is now under $400, and sentiment is objectively bearish on the stock for the first time in recent memory.



The put/call ratio has reached a level where emotional swings are common. This could lead to a quick (very short) snap back trade.  The market is still generally not very healthy and I expect volatility to continue in the near-term. For now, most of the liquidity has been exhausted on the upside, so what better time to test the liquidity on the downside?


In the long-term, investor sentiment towards the rally is still very poor despite all-time highs. I anticipate the  divergence between market prices and the feelings of market participants will be resolved by sentiment rising to meet price rather than the other way around. Pullbacks, while violent, only exist to lure in the bears and add fuel to the upside — trust that continued conversion by fire will continue after the washout is complete.

The MAMOx officially went bearish this week after missing a bearish cross last week by an infinitesimally small amount (a few weeks back we noted that it was a near mathematical certainty that a cross would occur). In the spirit of my long-term overall bullishness,  we’re saying that this should development should be treated as evidence to get defensive.


Winners: $KO, $PEP, $MSFT, $INTC, $JNJ, $PG, $CL, $SPG

Losers: $FCX, $CAT, $IBM, $AAPL, $GS, $MS, DVN, $APA


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