Marketview: Same as the Last Crisis

everything-is-random

The major story this week was that volatility returned to the market. I wrote a post about not getting too excited about volatility last week. Immediately after the 5-day study we highlighted the $VIX promptly broke above the previous swing high. Still, a decent fade on the emotions of the moment. Early on in the week it was pretty dark. The Yen was breaking down, and there was a knee-jerk risk-off trade around the potential tapering of QE. Then came word from the unofficial Fed spokesman Jon Hilsenrath, reminding the market that Dr. Bernanke will give “considerable” breathing room on rates if and when the taper comes. Enough people were on the wrong side of those comments to cause a mild short covering rally.

A couple months from now we will look back at this Yen carry concern as completely idiotic. Take a moment to remember external events the market previously lived and died by: sequester talks, Greek elections, Italian bond auctions. Not to oversimplify, but all of them satisfied the need to have something identifiable to point at and yell, “Risk! See, there it is.” The only constant is speculation and doubts about the Fed’s commitment to the QE strategy. I wish I could claim that the Yen carry trade can be ignored, but it can’t. Positions are on the books, and there will be winners and losers on a grand scale. Let it run its course — don’t let the ugliness of the unwind distract from the overall long-term trend in the process. Based on the recent past, a surge of volatility followed by a resumption of trend would not be too far off script.

Healthcare, utilities, and consumer staples were the leading sectors this week. Financials, energy, and industrials led the selloff to the downside. This is classic risk-off action and not constructive at all.

Next week will pivot on the FOMC meeting announcement, press conference, and surprise Hilsenrath memorandums.

Our indicators are still bullish, and I feel that the market will eventually find a way to higher prices, but how long the shakeout lasts is anyone’s guess.

Winners: $PFE, $MRK, $MDT, $T, $VZ, $MA, $V, $COST

Losers: $AXP, $MS, $C, $WMB, $SLB, $DVN, $NWSA, $CMCSA

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Below is the current opinion poll on market expectations. Helpful, right?

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Happy Father’s Day to all the Dads in the house!


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