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February 2, 2014 – Weekend Market Comment

February 2, 2014 – This week the pundits of Wall Street went from raging bulls to gloomy pessimism. Of particular interest were two comments on CNBC and some interesting observations by the high priest of technical analysis John Murphy.

First there is Art Cashin’s observation;
Bull markets have a maximum shelf life of five years, and Wall Street may soon approach the end of this one. It's a little bit of catch-up for 2013, We've gone for an awfully long time without a correction. Bull markets tend to have a maximum life of five years. We're getting awfully close to that. Heightened concerns over emerging market currencies and liquidity flows have made for a jittery Friday on Wall Street, as the Dow dropped 231 points during the morning trading session before halving its losses. If the S&P 500 drops below 1,770 the markets could see a wave of secondary selling. The S&P has held above that level and had regained some traction by noon. The key thing you should take away is that it's a nervous Friday in currencies, and you want to stay away from 1,770.

This echoes my own concern last week that the market must decline at least 10% some time in February to remain healthy.

John Murphy Pointed Out:
That overall this week was down, and that the two higher volumes days Tuesday and Thursday were no match for higher volume declines on Wednesday and Friday. In other words there was no real conviction in these two bounces. Mr. Murphy expects a test of the 200 day moving average but warns it may not hold.

As the market turns risk adverse there has been a steady flow of buying US treasuries, British, German, and Japanese government bonds. Mean while as the effect of the popped commodity bubble become apparent India, South Africa, and Turkey had to sharply raise local interest rates. Other first world commodity currencies in Australia and Canada also weakened. Pardon me while I brag but, I predicted this in July. Of course the winner in all of this turmoil has been the U.S. dollar.

John Lundgren on CNBC
Also some more worries about China’s ability to hold it bank system emerged in an interesting bit on CNBC with John Lundgren the CEO of Black and Decker. He felt there was a real danger that China's retailers were unable to get operating loans. As I said last week it could be a great time to short China.

This All Shows Up in the Charts
Just look what happened as the over eager buy the dippers poured into Netsuite on Thursday, only to be handed a big surprise.

As usually our indicators reflect the same story as the news as the recover bounces hinted at a possible bottom but refused to confirm it.

Here is the NYSE new high graph and it continues to narrow.

The Primary Sell Indicator shows strong pessimism from the wall street smart money

On the big board less than half the stocks are above their 50 day moving average.

What Works Now
Have a look at gambling giant WYNN resorts as more aging Americans choose to party away their savings in Vegas.

Well not too much really, defensive utility stocks are rallying.

Also notice the strength in Natural gas stocks like NuVista Energy

How To Play This
As I said last week Safety First, February is seldom a stellar month and this sell off is well underway but probably is not done yet. Remember CASH is a position too.