Before we take a look at the market picture, an apology to readers who have come to expect the regular broad analysis of the US financial markets to start each week. This past weekend your humble analyst took Mrs Simple Accountant away for some much needed R&R, and no email, internet, or financial news.
Now, refreshed and ready to get back to work, a few observations and a comment or two on the markets as of Monday’s close:
The stock market had an impressive day, with a big rotation back into cyclical and growth stocks. The SPX came up to the 50 day SMA, and has now retraced nearly 50% of the drop from the February 18th high (closing basis). Volume was lighter than last Wednesday’s big selling day, and a look back reveals that the three of the four highest volume days so far in 2011 have been down days (through my investing career, this has been a generally reliable signal of market weakness…in the current post-crisis bull market, however, this analytical tool appears not to work so well). I should also point out that nearly 20% of NYSE volume on Monday was in Citi shares following the reverse split and penny dividend announcement.
The last two trading days have been somewhat similar: both opened with a gap up from the previous close, and both recorded most of the day’s gain in the first 15 minutes of trading. The difference is that where Friday’s action saw most of the early advance given back through the rest of the session, today the gains held all the way into the close.
It has been a bullish three days, whatever the reason, and the tape is what it is, but as of yet it looks like it could be a counter-trend move in corrective downward swing, or the start of a period of sideways movement that consolidates the gains of the last two years.
Over in the bond market, 10 year Treasuries remain below 3.4% at the moment, so nobody seems to be getting too excited there. For all the talk of an inflation driven debacle in bonds, there is no sign of it yet.
Oil is in the middle of the recent $100 -105 WTI range, and seems to be caught up in suspense over the MENA situation. It’s a wait and see game there.
The movement I find most interesting, as my regular readers may have guessed, is in the US Dollar index. With ECB President Trichet having signaled a hike in short term rates, and potential successor Mario Draghi publicly echoing the sentiment, the euro has moved above $1.40 and seems able to hold that level, while the Dollar index remains below 76. As long as the Dollar remains weak, risk assets are likely to find a bid.
It’s really looking to me like two years of “buy the index and stay put” as a winning strategy may be ready to give way to a trader’s market, and one with a lot of risk at that. I will be watching closely for signals in the coming days and weeks.