The market ran into trouble last Friday and the question is was it option related. As was the plan given to our clients, all longs were covered once we broke below the ES rollover pivot of 1080.50.
Was the action last Friday just a one day wonder? Highly doubtful, the market has the look of trouble started. The fact that the bond market continues to rally has made the stock market's upside come into question. Copper also is struggling and since it has led the market around by the nose since March 2009, that is a warning that we must heed. What you cannot do is hesitate. Looking at the position of the (Daily) MACD's on the S&P 500, again it's going to be very late coming to the directional change. The market will have moved long before a sell signal is generated.
Weekly Percentage
Weekly New New Percentage New New
Name Adv Decl High Low Adv Decl High Low
-------------- ---- ---- ---- ---- ---- ---- ---- ----
Dow Ind 10 20 1 0 33% 67% 3% 0%
S&P 500 133 367 22 3 27% 73% 4% 1%
S&P 100 34 66 3 1 34% 66% 3% 1%
NASDAQ 100 50 50 5 1 50% 50% 5% 1%
Global financial market returns stand at the threshold of mediocrity. With bonds priced not for recession but near depression, most major global bond indices now yield less than 3%. Last Friday, the 2-year T-note yield hit a record low. Note and bond yields have been easing on both favorable inflation numbers and downgrades on the recovery. The 3-month T-bill is still held down by a very low fed funds target range of zero to 0.25 percent. The Fed has continued to state that short-term rates are likely to remain extremely low for an extended period of time.
For July, manufacturing appears to be softening in the mid-Atlantic and New York State areas. The Philadelphia Fed's general business conditions index came in at 5.1 in July indicating a slower rate of growth than June's 8.0 reading. Break even is zero instead of 50 as with the ISM reports. But there is a possibility of decline ahead. New orders fell to minus 4.3 to mark an end to a year long string of growth. Unfilled orders—at minus 8.6—showed significant contraction. Delivery times improved sharply, indicating fewer bottlenecks from softer demand. This is a negative sign for business activity. Employment did show a modest gain at 4.0 vs. June's minus 1.5.
The recovery is still underway but we may be hitting a temporary plateau in the second half. Even though there are signs of softness, growth will still depend heavily on manufacturing and the consumer sector. The good news is that exports and business investment in equipment are starting to carry more weight. On a final note, slower growth is not the same as a double dip. With monetary policy still so loose, another recession is trying to be avoided. The Fractal (see picture) continues to point to higher bond prices and with the economic data shifting for the worse, bonds continue to look stable to higher in price. As bonds go higher in price that continues to pressure stocks lower.
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