Marketview: How about now?

• Posted by DynamicHedge
• on January 18th, 2014

 

Perspective

When you look back at this market in a years time you will still lack a perfect understanding of what took place. You will form incorrect memories and evade the truth with regard to your actions. Especially when it comes to errors of judgement made in real time. The perception of where we are right now will be lost based on what comes next. The public narrative is continuously written to support popular opinion – not yours. Can you remember the actions you took when you felt you had a clear picture of the world? The world before your account statement and a historical perspective that you cannot possibly objectively recall whispered in your ear. Are you feeling dumb or smart, right or wrong? How about now? Better check the ticker for the latest quote.

The Score

In the most broad sense, what can the bulls and bears lean on at the moment?

Bullish case is: market trend of continued upside price discovery, global monetary policy, continued overall trend in improving data (tepid is good remember – it means less taper).

The case for the bears is: Well valued market (good news already priced in), the only thing running breadth higher is third-tier stocks, increased volatility in data points and the daily range of the S&P 500, bullish sentiment is massively overheated by many measures.

Our take is the rally is crazy extended and in desperate need of a correction to build a base and recharge. We modeled some scenarios where we see a pullback in the first half and then higher prices into the end of the year. Still thinking this has the highest probability.

The Week

Busy week coming off a big selloff on Monday. Bank earnings dominated the news  with $WFC doing well, $MS and $JPM meh, and $GS and $C shitty. M&A rumbling and a decent retail sales report were enough to light up a nice turnaround Tuesday. Wednesday we were back to new all-time highs. By the end of the week,  we were back to virtually unchanged.

Bright Future

As flawed as it may have been to start with, the concept of Net Neutrality suffered a big setback last week. Those who oppose Net Neutrality want to shape the message as analogous to 1-800 number service – pay more for better service. In reality,  the companies who manage the infrastructure of the internet just want to get in on the profits that disruptive companies are rightly enjoying. In the process, this will effectively allow current marketplace winners with deep pockets to lock out future innovation (and competition) and permanently tilt the playing field. The internet is an amazing machine for growth and innovation and letting lazy corporate incumbents lobby the vitality out of the economy is a crime.

Winners and Losers

Technology, basic materials, and healthcare were all strong this week. Consumer anything and energy were weak. The rotation looked like this:

USA Only Holidays

Enjoy the long weekend! Hopefully it doesn’t get spoiled by some ruckus while US markets are closed.

 

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