Going nowhere fast to start the week as the indices did come back from early weakness to close -- basically flat. That continues mostly flat action the past five weeks for SP500, DJ30, and SP400. For NASDAQ and RUTX, just 2 weeks moving laterally. New highs have been posted, but it is no new surge upside. Outside of SOX and its higher highs as well as the areas of leadership, the market has traded flat.
SP500 -1.23, -0.06%
NASDAQ 6.22, 0.12%
DJ30 -23.15, -0.12%
SP400 0.06%
RUTX 0.24%
SOX 0.03%
VOLUME: NYSE -17%, NASDAQ -4%. Post expiration low trade though volume was still relatively low on expiration.
A/D: NYSE flat, NASDAQ 1.2:1.
That flat overall trade right at new highs leaves those bearish even more so as the overall market fails to push its new highs significantly higher for a month or more. Indeed, Mr. Gundlach, the man who really started the outspoken bear parade, revealed that he is now 100% short the market. Kind of precarious because he has nothing left to sell as if you are 100% short that means you are margined to the max.
That raises that old paradox of sentiment indicators. They are ultimately best as contrary indicators. If everyone is bullish, who is left to buy? If everyone is bearish and has sold or is maxed out downside to margin limits, who else is there to sell? That is when reversals occur. If all of the big names and many of the big brokerages and funds have their clients and portfolios all in short, that will take more downside converts to generate the selling they want.
With the investment surveys showing investment advisers approaching 60% bullish, that is where more sellers could emerge. If some negative stories hit, they could flip negative, and there are your new sellers. Thus far, however, the bulls are keeping the faith, no able to really drive stocks as a group higher, but not selling them off either.
While most stocks went really nowhere, some of the same leaders continued higher. Some; even these struggled to hold gains. MRVL enjoyed a solid day in semiconductors. Drugs and biotechs were mostly upside again. Financial stocks posted very modest gains. Many still look ready to go, just need the push. Hmm. It has been that way for awhile now.
NEWS/ECONOMY
No scheduled economic news but of course with central banks engaged in economic micromanagement, there is always someone talking. Monday it was the BOJ and the Fed Vice Chairman.
Kuroda at the BOJ, now that the Finance Minister has punted to the BOJ as of July, is shouldering the stimulus duty. Monday Kuroda indicated the BOJ remains ready to introduce more stimulus, likely in September. So, keep buying equities because the BOJ is going to support them in Japan.
The US Fed continued its back and forth policy thrashing that is characterized by the FOMC members and Fed governors speaking 2 to 3 times per week about their views on what Fed policy should be and warning markets to beware as they could be surprised. Or, they simply state the obvious, i.e. the Fed will only hike once before 2018.
Monday Vice Chair Fischer, already at Jackson Hole, issued a note of caution for the markets, indicating it is wrong to believe no rate hikes for 2016 and that September, of course, is possible. More dovish FOMC minutes last week, more hawkish individual statements as a follow up. There is no theme among FOMC and individual members and governors. Or, the theme is there is no theme or consensus.
That leads to market participant confusion and indeed confusion among the large banks and brokers. Monday Rabobank penned a note stating the Fed likely won't hike in 2016 but it cannot admit that to be the case because that would be an admission that monetary policy is now ineffective. That is the fear out there, that day when the Fed tells the markets to jump and they don't.
Of course, there is ALWAYS the February 2016 last ditch effort, the direct intervention by world central banks in world markets. The central bankers have a pen and a phone; they can dial up intervention anytime without having to implement new policies and the coincident questions as to why a new policy was needed. Mandate? What's a mandate? We have powerful friends to take care of so look the other way.
Monday the flip back to the 'don't test your Fed' admonition put something of a damper on the session, and stocks didn't go anywhere. Again.
The Session
Well, maybe they didn't go anywhere as a group as noted. We did, however, pick up some ROVI as it broke higher again along with ATRS. BIIB jumped after the Friday close higher and we bought some, but it slid back to flat at the close. The big names on NASDAQ are not bad with FB bouncing, GOOG testing the 20 day EMA, AAPL holding a 10 day EMA test, and NFLX still looking good in its range. There are also financial stocks, more chips, and more drugs/biotechs looking pretty solid. They didn't all throw in Monday but they are still setting up well to give it a shot if the bids return their way.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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