Market Week in Review, Sept 6 – 10

Time to take a look at the week just ended. It was a second positive week for the major averages (except the small caps), with the SPX ending above the 200 day SMA after topping the 50 day the week before – but volume contracted dramatically. Most sectors posted gains, led by health care shares, but the techs lost ground on lowered expectations from some of the large names. Semiconductors were particularly hard hit. Lagging tech and defensive sector leadership, and non-participation from the small caps, isn’t consistent with a positive outlook for economic growth and a broad bull market.

Treasury bonds pulled back again as yields rose along the entire curve. Munis, TIPs and Corporates all stalled out at their tops. Only high yield and emerging market bonds gained a little ground with the incipient risk rally. There’s nothing to do in the bond market right now: the easy money shorting them has already been made, but even at these levels they are not an attractive buy. Not much movement in the major currencies, save for Yen pulling back a bit after a strong run.

Oil had another positive week, closing above $76, but natural gas remained under the $4 level, not showing much signs of wanting to rise. There are some negative indicators on oil, but I would wait until it breaks $70 to go short. Agricultural commodities, which had enjoyed a nice late summer run, were mostly flat – wheat nearly unchanged, corn and sugar up ~1%, coffee down a little but still near the top of the price range. Gold reached up to its early summer highs and failed to break out.

Looking ahead, next week brings a number of important economic data reports, and it seems traders and money managers are waiting to see which way things break. Stocks are still trading indecisively in that 1040-1130 range, and on low volume. There isn’t much quality leadership coming out to move the markets higher.

There are no compelling macro trades to be put on here, except possibly shorting gold which has failed at resistance (gold trader Tom O’Brien is strongly bearish). Long positions in large cap techs should be watched closely, as several are close to breaking key support levels. Aside from these items, the coming week looks like another one spent in wait and watch mode.

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