February 14, 2016
Weekly Market Outlook
By Keith Schneider
Markets continued to falter and rallies sold hard throughout the week and at one point equities were down -3.5% on Monday’s swoon alone. The clue that there was more downside left as of last Friday was that our sentiment and market internals were not nearly oversold. It was also pretty clear that Gold had steady buying, while the spreads between high yield debt and bonds exploded.
Both last week and the week prior, there were a number of times that the equity markets looked as though a short term bottom was in and had many thinking that it was safe to buy, but it wasn’t until late Thursday bulls were rewarded.
It took the Mondays washout and Thursdays test of the January low by the S& P 500 to find some support and stage a comeback. The plunge protection team must have been working late. If one is looking for a bounce expect it to be the dead cat variety. To get this type of trade right requires finesse and tape reading.
Early in the week an indication that the selling might abate was that a defanged NASDQ 100 began to firm relative to the SPY and the root canal on the remaining FANG (FB) complete. Bear market rallies are often the most vicious.
By Fridays close, a powerful (+1.5 to 2%) rally allowed equities to regain most of its lost ground with NASDQ 100 closing virtually unchanged. SPY was down -.7 %.
Although these two tells (gold and Bonds) abated with the equity rally Friday, Gold held firm relative to its explosive move and GDX continued to soar to new highs and is up 37% YTD. Applying Einstein’s now proven theory, one can detect a longer term gravitational pull down on equities.
Negative interest rates as a CB policy is used to force banks to lend. Japan’s central bank is already there, Germany is close and the Fed is discussing it. This unheard maneuver is all the rage and indicates just how desperate Central Bankers are to spur growth and how investors are fleeing equites to lock in a zero return for up to 10 years! The fact that bonds have virtually hit lowest levels ever while the Fed notched up rates a smidgen just a short while ago is not inspiring confidence either.
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