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.
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
- Venezuela Buring by Danielle DiMartino-Booth via Money Strong
- The Fed Can’t Increase Credit by Adrian Moore via Reason
- Not So Positive On Negative Rates by Noah Smith via Bloomberg
- Why The Fed Must Raise Rates by John Crudele via New York Post
- Who Needs The Fed by John Tamny via The Federalist
- 5 Reasons Market Is Ignoring The Fed by Caroline Baum via MarketWatch
THE MARKET & ECONOMY
- Every Stock Was A Buy To These Analysts by Phil Kuntz, Fox Hu via Bloomberg
- Stocks Are More Expensive Than Ever by Anora Mahmudova via MarketWatch
- Confusing Main Street & Wall Street by Kenneth Blackwell via Washington Times
- Warren Buffett On Valuations by Bryan Rich via Forbes
- The Limits Of Oil’s Rebound by Anatole Kaletsky via Project Syndicate
- A Rate Hike Could Upend S&P 500 by Wallace Witkowski via MarketWatch
- How Cheap Debt Cripples Economy by Jonathan Rochford via MarketWatch
- Black Swans Facing The Markets by Katy Barnato via CNBC
- Conservative Bias In Economics by Mark Thoma via Fiscal Times
- Rising Rates Are Biggest Threat by Martin Pelletier via Financial Post
- Corporate Debt Binge Gone Wild by Rich Miller via Bloomberg
- A Generation Of Hard Times Ahead by New Deal Democrat
- US Yield Curve: Global Yellow Light by Ed Yardeni via Yardeni Research
- Economic Reality by Howard Marks via OakTree Capital
- 20 Common Trading Mistakes by Russel Kinnel via Morningstar
- Markets Confound Traders by James Mackintosh via WSJ
- Why I Keep Writing The Same Thing by Joe Calhoun via Alhambra Partners
INTERESTING READS
- Factor Investors Guide To Economic Cycles by Ehren Stanhope via Factor Investor Blog
- Bill Gross: The Last 40-Years Of Investing Is Over by Bill Gross via Janus Capital
- Housing Bubble Pop-Quiz by Mark Hanson via Mhanson.com
- Sorry State Of American Finances by Maria Lamagna via MarketWatch
- Socialism For The Uninformed by Thomas Sowell via IBD
- 0-2% Returns Over Next 10-Years by John Hussman via Hussman Funds
- Real World Inventory Discrepency by Izabella Kaminska via FT AlphaVille
- Gundlach Right About Short Squeeze by Tyler Durden via Zero Hedge
- Just Your Average Pullback by Dana Lyons via Tumblr
- Simple Reason Why Fed Is Market Dependent by Jesse Felder via The Felder Report
- Death Of A Virtuous Cycle by Michael Lebowitz via 720 Global
- Obama: Let’s Raise Social Security Benefits by David Stockman via ContraCorner
Questions, comments, suggestions – please email me.
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
