The week just ended was a forgettable one for stocks. After gapping up at Monday morning’s open, the market sold off steadily through the week before finding a bid Friday. The SPX closed above near term support at just under 1077, but it was an ugly week to be sure. Looking at the technical picture, on a weekly chart we have a “bearish engulfing” within a “head and shoulders top” pattern. On a more positive note, the market did break its fall and breadth was positive on Friday. While it took a pretty good hit, the attempted rally off the May correction remains intact.
Most of the major foreign markets also posted losses to varying degrees. China, which made the news at the start of the week with its currency stance, was among the better performers. Emerging markets are generally showing more strength than developed markets, which is a sign that favors the bulls.
Bonds had a good week across the maturity curve and in both conventional and inflation indexed forms. Ongoing talk of austerity and deflation and a generally downbeat Fed pushed yields down again, as the curve contuinued to steepen. The bond market is in a strange place these days; a number of analysts seem to think it’s a bubble ready to wipe out more investors, but others – notably Dave Rosenberg, who had a column in the FT this week, scoff at that idea.
In currencies and commodities, the dollar pulled back again and the euro rally extended to a second week, while oil rallied along with some of the metals and ag products. Natural gas, which had been coming off the bottom the past few weeks, reversed course. Interestingly, while crude oil gained, energy stocks were generally weak, perhaps a sign of the BP effect. I continue to hold positions in a couple of the energy majors, and look to add more on weakness.
Looking ahead, there has been a flow of pretty bad numbers and bad news, and it is weighing on the market, but the SPX has held above that 1045-1050 low that we have seen a few times this year. Although there is plenty to worry about, I can’t yet make a bear case here, though I can’t yet recommend being all in either. There isn’t a clear direction here, so for now we watch, and wait.