Marketview: Tale of Two Timeframes



Rotation, Breadth, and Leadership

For the last couple weeks, industrials and basic materials stocks have lead the market. Financials and consumer staples continue to lag. The underperformance financials being most concerning for those looking for upside follow thru. The most interesting pocket of strength has been in small cap stocks. We’ve been keeping a close eye on the spread between the pure value and pure growth indexes and have watched growth steadily outperform value. While these conditions can make for some exciting trading (speculative names catching a bid), they have also been associated with short-term tops in the last couple years. Nothing to get too alarmed about, but worthy of attention. Breadth of all measures has struggled to maintain above average levels. Cumulative breadth has yet to make new highs corresponding to the market’s spike higher on the FOMC meeting announcement.


It’s still too early to speculate whether or not this divergence will stick or if the market will slowly digest the inconsistency like a python swallowing a deer. My gut feeling is that breadth is garbage right now because we are under stealth distribution — one sub-penny and millisecond at a time.

Current Events

Does the debt ceiling issue have the potential to be a massive negative catalyst? Yes. Do you have an edge in this process? Probably not. The only discernible trend is the enfranchisement of extremist viewpoints as rational voices exit the debate. Politicians (as well as marketers) know that emotional valence moves the needle more than facts. Information is not designed to make us more informed. It’s designed to make us angry. We’re being manipulated.

Economic Releases

S&P Case-Shiller HPI: The trend in home prices is still higher, but gains are moderating. The prices of new homes actually declined in order to spur demand. Long-term, housing still appears to be in a bull market. This index is slow moving. Don’t anticipate that this will make any sharp deviations from trend.


Jobless Claims: Again printed a much lower number than anticipated. A couple of weeks ago, I speculated that continued lower jobless claims might be the catalyst for new all-time highs in the market. That was before the FOMC meeting burned thru the remaining gasoline in the tank.

Consumer Sentiment: Still nowhere near levels associated with long-term bull market highs. This remains one of many reasons that I’m still long-term bullish. This bull cycle will not end without this indicator becoming excessively overbought. Humans, and their view of asset price appreciation, don’t change. Give me a 90 reading or higher before I turn into a long-term bear.


A tale of two timeframes

The long-term underpinning of the bull market is still intact. There is a post from last year called Fundamental Top-Down Macro for the Brain Damaged where we had some fun with creating a Pareto-style model for housing, employment, economic expansion/contraction, and sentiment. Basically, the main drivers of equity markets. Each of those basic measures are still trending in the right direction or remain in a “safe” zone. What has me worried at the moment is the actual mechanics of the market. The market is not the economy, and every once in a while the auction process of the market gets out of sync with what it’s supposed to be tracking and creates downside volatility. We are watching a lot of indicators we trust flash warning signs, but those warning signs remain valid for the next several months, not the next several years.

Winners and Losers

Winners: $NKE, $AAPL, $OXY, $SLB, $SLB, $AMT, $BA, $CMCSA, $TWX

Losers: $ABBV, $BAX, $LLY, $ABT, $MS, $GS, $JNJ, $PG, $GOOG

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