Let Sleeping Sharks Lie

April 2, 2017

Weekly Market Outlook

By Keith Schneider


blankUS equities markets bounced nicely last week after an awful -1.0 % gap down Monday morning. The S&P 500 ended Monday flat and the week positive +.80%.  It fulfilled prophecies of more volatility ahead, the by-product of the recent 109-day streak of extremely docile, bullish price action finally being broken.

This reminds me of the sleeping sharks that frequent the underwater caves off the coast of Cancun. They may be fun to pet when snoozing but not so good to be around when they wake up hungry. In fact, those reef sharks are known to be extremely menacing to humans.

The market is at a key inflection point. It remains to be seen whether the market will head higher with another snooze in volatility or lower thereby more akin to sharks that are waking up ravenous.

There are a couple of noteworthy items to highlight. One is that growth stocks are outperforming value stocks which usually happens during economic expansion. Gold, Silver and Copper look poised to break out of longer term chart patterns as well, also consistent with an environment of growth plus inflation.

However, the S&P 500 and the Dow are showing strong distribution. Momentum is also waning which is a precursor to a market selloff. The caveat though, is that price action must confirm.

Another excellent gauge of upcoming volatility is the moving average of the ratio of the S&P 500 versus Utilities. Both the short and longer term inflection points of this indicator are converging, which I cover in detail in this week’s video.

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