A Bump in the Road, but Risk Rally Continues

We’ve seen an eventful week, with a sharp jump in oil prices driven by what amounts to civil war in Libya, a rally in Treasury bonds, and a selloff in stocks. After a string of humdrum weeks in which the dominant trend seemed to just roll on without an end in sight, we finally have some counter-directional movement. Now we have to review those trends to see whether they remain in effect.

Please see my full analysis on Monday.

Advertisements

2 thoughts on “A Bump in the Road, but Risk Rally Continues

  1. Hello Harry,

    On the daily chart, the MACD is still trending down, so I am biased to the downside, until the MACD turns back up. That is my own personal technical analysis.

    Yet I readily agree that this selling is not yet as deep as November, which was actually shallow. It sold off only 4.5%, if I remember correctly.

    Did you read what Vice Chair Yellen said? I am diligently watching the Federal Reserve, because I believe that the QEs are the driver of this bull.

    This is from barrons.

    She does indicate that the Fed will telegraph its intentions ahead, stating that the “extended period” language will change to shape market expectations. Yellen also said that the Fed is regularly reviewing its expansion of its balance sheet in light of new information.

    And this is from seekingalpha, from her speech.

    If financial market participants appeared to be expecting policy firming to begin somewhat sooner than policymakers considered desirable or appropriate under such circumstances, the language of the forward guidance could be adjusted to shift expectations toward the somewhat longer horizon over
    …If policymakers viewed that alternative path as appropriate and market participants came to share that view, then financial conditions would become significantly more accommodative,

    With slight dips, the market direction appears to be up. The April 26 consolidation was the lull between QE1 and QE1, from what I read.

    Thanks for this discussion.

    Aloha,
    Shirley

    • Hello Shirley,

      Technical divergences on indicators like MACD are very useful; my read on the MACD currently is that it appears to be pretty much in line with the SPX price movement on the daily chart. Last week’s modest pullback also relieved the short term overbought condition.

      It’s difficult to know what to make of Yellen’s comments; there is probably a fair bit of earnest debate within the Fed, and she is a known “dove” on policy…so perhaps she’s trying to get some credibility with the more hawkish faction? Is QE the primary driver of the bull? The correlation certainly appears to be there, but is it causation? I don’t know, and am not sure how much it matters at the end of the day.

      What I’m specifically on the lookout for are signs of distribution or professional/institutional selling. The price and volume action shows that it may be underway, but several of the leading stocks have showed distribution type action for well over a year, and the share prices keep rising – these patterns haven’t been as reliable as they traditionally have been, for quite some time now.

      Regards
      Harry

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s