Marketview: Momentum Continues



Classic price action this week as the market sized up a big round number and then backed off only to make another run and break through. We are not big fans of adding to risk here, but there is a seasonal drift and momentum that needs to be respected. Carl Icahn (who is on fire this year) comes out and says that earnings are a mirage and the market could face a “big drop”. Sell off a few points. The market gets spooked on taper discussions in the Fed minutes. What happens next? We resolve higher. Apparently there is still money that needs to be put to work, and the market won’t have meaningful downside until those dollars have an opportunity to work through the system.



Central banks are burdened with great responsibility. One of which is to sucker punch anyone who dare short stocks. Lets face it. If you’re betting against the economy, you are public enemy number one of the Federal Reserve.

Even if the effectiveness of their tools are dwindling that doesn’t stop them from trying to influence “market expectations”. The ECB is talking about negative rates. The Fed brings tough talk to the minutes only to release a Bernanke speech which all but assures the investor community that QE will stay on until the Fed’s economic objectives are met. Even stating that the pace of asset purchases could increase if the economy blinks.

A March taper is priced in. The gyrations around announcements are just high-stakes games of “find the liquidity”.



It’s tempting to call this out, but as it stands participation remains high. Is it in lockstep with the indices? No. But this can change in a heartbeat next week. If it stays lackluster for too long, it becomes a big concern. However, if you’d taken drastic action every time breadth had a minor hiccup, you would have missed out on the majority of upside in the market.


That feeling

One thing the market can’t shake is the feeling that the rug will get pulled out from under us at any moment. Long-term this feeling will need to be resolved before the bull market concludes. This means that higher prices are required to lift the spirit of the populous before we enter a long-term bear cycle. It might take a while, but eventually everyone will buy into the bull market.

This meme has been ongoing since 1100 on the $SPX. If you had told me then that the feeling would be the same after an additional 700 points I would have never believed you. Yet, here we are. No one wants to look stupid by making a bullish call into the highs. What happens after the next 700 points? It’s only a couple (five, six) years away.


Building Permits

Speaking of “that feeling”, one of the long-term macro indicators we watch is looking a bit heavy. The data is a bit stale, but I thought I would mention it in light of the recent housing numbers.


It’s way to early to call an end to the run in housing. But, this is a key driver of economic growth and worth paying very close attention to. If it is stalling out, it could have broad ramifications. This is just one of the many macro indicators I follow to give me a Pareto-esque understanding of the complex macro picture.



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