September 21, 2014
Weekly Market Outlook
By Keith Schneider
The wall of worry hanging over the equity markets caused by separation anxiety over the possibility that Scotland might secede from Britain was finally lifted Friday. Scotland decided in favor of staying together rather than divorce. Sanity prevailed in the end, as the obvious economic disruption from Scotland actually splitting off would have been a disaster. It would have created additional pressure for the current conservative government to leave the EU, which would cut off England from access to almost 400 million European consumers and further slowdown an already slow global economy.
The US equity markets, loving that wall of worry, made new highs on Thursday and initially reacted positively to the news Friday, but most indexes promptly sold off and closed down led by the small to mid –caps, which coincidently closed down 1.5% for the day. So speaking of separation anxiety, the IWM (small to midcap) is now down about 1% for the year while the Spy is up about 9%. That is quite a separation and it has been going on all year. High-lighting this disparity, large cap Dow stocks put in new all- time highs on Friday. Meanwhile, the deflation/inflation indicators are pointing towards deflation while the Fed is reducing it injection of money another 10 bill this month. Gold and silver tanked as the dollar rallied and deflation seems to be a real concern. Seasonal patterns are a headwind as is the aftermath of September quadruple witching options expiration.
View the video below to see the classic textbook case chart patterns playing out in IWM (Russell 2000).
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