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October 18, 2014 – Weekend Market Comment

October 10, 2014 – OK folks I will appoligise from the start, I am in Europe and I left my laptop at home. The good news is I did not bust my back comuting on the London Underground but the bad news is the quality of what I can show you will  be impared for a month.

U.S. stocks rallied on Friday, softening a fourth week of losses, as investors bet on further stimulus from central banks and corporations including General Electric and Morgan Stanley reported profits that topped expectations. Scaling back after a 310-point jump, the Dow Jones Industrial Average rallied 263.17 points, or 1.6 percent, to 16,380.41, with UnitedHealth Group leading blue-chip gains that extended to all 30 components. Halting a six-session decline, the Dow lost 1 percent for the week. Posting its longest weekly loss streak since August 2011, the S&P 500 added 24 points, or 1.3 percent, to 1,886.76, with industrials the best performing of its 10 major sectors, all of which advanced. The Nasdaq climbed 41.05 points, or 1 percent, to 4,258.44, down 0.4 percent from last Friday's close. The Russell 2000 edged lower, but the small-cap index scored its first weekly gain in seven. For every share falling, nearly two gained on the New York Stock Exchange, where more than a billion shares traded. Composite volume approached 4.5 billion. Things looked better for Europe too with a 3% rise in Eurozone stocks Friday.
OK well there are a few things to keep in mind here. That bounce that began Thursday was impressive, both in size and in the participation of small caps, I will show that in a momnet. Also ta da we do have a Green Arrow on the Green Arrow Graph! But before I show that I warn you about a chart that has me concerend.
OK lets see that green Arrow (yeah you gota click this week to see pictures):
And all the usual indicators are starting to head upward.
But check out this puppy, the one that has me concerend. This shows a monthly view of midcap equities and because this is a monthly chart those are very big time frames you are looking at, Notice it can be a long time until you get a red bar and when you do . . . it is often trouble for a while.
To be fair this is only true on the midcaps and is not what the S&P500 version looks like, also this is a monthly graph and the month is not done. But things are changing, in short, volitility is back and we are prbably in for a bumpy ride up to the U.S. mid term elections. The markets understand that with global growth at a near stand still that really most of the optimsum has been from US equities.
I noticed a few things on Thursday that all happened at once. First off the US 10 year treasury note fell below 2%. The sell off in the S&P500 hit a 10% sell off almost exactly.  The Midcap 400 hit in the 1270 range same as the Febuary low.

So we followed with a two day bounce. An impressive bounce but we did only sell off about 10% and last week I showed how it could be close to 17% to be more in line with the end of the prior to QE sessions.
The CBOE Volatility Index, a measure of investor uncertainty, dropped almost 13 percent to 21.99, a level that has it up nearly 74 percent from a month ago. Clearly the pros are taking off the saftey net slowly.

Aggresive Defensive
You will noice that what you see here is the tiny fimrs that make up the Midcap 400 are beeting the mosted stable dividend plays. This is very encouraging a few more days of this and we will be lcearly back in RISK ON mode!

If you want some hints where to look at what I am buying have a look at my prior blogs including:
Dominos Pizza
Wells Fargo
CP Rail
I can tell you over here in London there is no shortage of young people who can afford 40 pounds sterling for a steak or a cab ride, 200 pounds for a sweater, and even 40 punds for a steak. I see little poverty and lots of help wanted ads, so things can't be too bad in Europe.
Well that's the news for this week... reporting from the Canary Wharf Hilton in the heart of finance for Europe, the London Finacial District. Next week is Bordeaux France, it might even be harder to write from there!

You can learn more about my indicators by visiting the CME4PIF school by clicking here.
You always can make any graphic larger, for a better look, by clicking on it.