Marketview: Summer Trade

• Posted by DynamicHedge
• on June 29th, 2013

 

Big reversal week off oversold conditions. The first theme that stands out this week was the Federal Reserve Taper Explanation Tour 2013. Remember that time you invited your buddy to a party and he got so drunk that he only stopped hitting on the host’s wife to knock over furniture and shout/tell wildly inappropriate jokes? The next week you call everyone to apologize for your friend’s erratic behavior and try and convince them that he’s actually a really good guy — he didn’t really mean anything by all those taper jokes. The parade of statements and speeches by FOMC and Federal Reserve members feels a little like that.

The liquidation cycle in fixed income seems to have abated for the time being. Stabilization of the fixed income market is a big plus for equities. Lastly, the Japan carry trade won and the Chinese financial system failed. Abenomics is back in fashion, and the trade should be safe until everyone piles back onto the same side of the boat again. Chinese markets participated in the big Asian market reversal but still look vulnerable. China is not going to start leading the global markets higher. Just monitor that it doesn’t completely fall apart.

Utilities, consumer discretionary, and financials led the market higher. Basic materials, energy and technology lagged. Utilities are coming off deeply oversold conditions. I don’t feel their leadership in this rally is a warning sign — just an easy trade for most people to put on this week. Another sector primed to catch the elastic band effect to the upside is technology. The spread between the tech sector and the broad market reached the same oversold levels that utilities did a couple weeks ago. If technology sector can catch any sort of momentum it has great potential to outperform.

Sentiment is still relatively low which leads me to believe the market wants to grind higher. I get the feeling that volatility will linger but not spike. This is a tough market to be in sync with, and it’s wise not to press bets in summer months. Try and step away from the monitors and enjoy life.

Winners: $HD, $LOW, $JNJ, $UNH, $GILD, $BA, $GD, $NKE

Losers: $AAPL, $EMC, $IBM, $ACN, $ABT, $MRK, $CAT, $FCX

Quick MAMOx update. Still bullish on the pullback.

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