Weekend Reading: The Market And Economy Keep Diverging------This, Too, Shall End

Winston-Churchill-Procrastination

Another week of going nowhere, really.

The good news is that this sideways pattern of market action over the last year will come to an end and likely very soon.

The only question investors have to get right is whether that resolution will be a continuation of the bull market that began in 2009 OR will it be the beginning of a more protracted bear market decline.

“Step right up and place your bets.”

I have updated the analysis from last week which shows that while the market did bounce during the holiday-shortened trading week, it did so on very light volume. However, the more encouraging news is that on Thursday the market DID break above the downtrend that began last May.

However, since this is weekly analysis, that breakout MUST HOLD through the end of trading today (Friday).  A failure to do so would negate the breakout and keep the markets confined in the current downtrending pattern. 

SP500-MarketUpdate-060315-2

While the short-term market dynamics are improving, primarily based on “hopes” the Fed will NOT raise rates in July, the economic and fundamental backdrop continues to weaken. This divergence between price and reality will be resolved at some point and likely not to the satisfaction of those with a bullish bias. 

With the risk/reward ratio for equities still tilted to the negative, the current rally is likely one that investors should continue to ‘sell into’ particularly as we head deeper into the seasonally weak period of the year.

Yes, there is a bullish argument to be made if the market can break out to new highs, and if that occurs I will certainly reassess the risk/reward of increasing equity exposure further at that point. But that is not today.

Unfortunately, and frustratingly so, we remain confined this week to wait and see what happens next. As I stated, the only certainty is this consolidation/topping process will end.

When? How? Those are the questions that must be answered which will determine the consequences of our actions.

“In it’s place we are entering a period of consequences.” – Winston Churchill

Here is your reading list for the weekend.


CENTRAL BANKING


THE MARKET & ECONOMY


INTERESTING READS


“If you are having trouble imagining a 20% loss in stocks, you should not be in stocks.” – Jack Bogle

Questions, comments, suggestions – please email me.

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Lance Roberts

Lance Roberts is a Chief Portfolio Strategist/Economist for Clarity Financial. He is also the host of “The Lance Roberts Show” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report”. Follow Lance on Facebook, Twitter, and Linked-In

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