Jason Geopfert of SentimenTrader.com recently explained that a three-month view of the S&P 500’s upside persistence (closing near a daily high) has reached an extreme seen in 4 other instances over the last decade. On each of those occasions, the market hammered risk assets with a significant pullback. In the last 30 years, the only time that markets did not sell off dramatically when upside persistence was this extreme occurred in 1995.
So is the market experiencing a 1995-like renaissance? Plenty of bullish prognosticators seem to think so. Of course, the recent price activity might cause the perma-bulls a bit of indigestion.
|S&P 500: Profit-Takers Battle the Dip Buyers?|
Four consecutive days of closing below the intra-day highs does not exactly constitute a pattern. Yet closing at the low end of an intra-day range and/or witnessing a pickup in CBOE S&P 500 (VIX) Volatility is rarely a positive indication. Then again, each successive VIX spike in 2013 has been weaker than its predecessor.
Will the manufacturing slowdown in China act as a precursor to a more subdued appetite for risk assets? Should a 7% single-day drubbing of Japan’s Nikkei Average be regarded with a bit more trepidation? Is the newfangled “Fed Speak” causing greater uncertainty about the future direction of monetary policy, rather than serving to provide greater clarity?
The fact that the global economy in weakening should come as no surprise to anyone. Other than a willingness by investors to acquire beaten down stocks and bonds in Europe, the region’s recession is deepening. China’s economy may be brighter than that of Europe, yet leaders are unlikely to provide stimulus with the ongoing threat of asset bubbles and inflation. Â Meanwhile, the one bright spot for the U.S. (real estate) is entirely dependent on the Fed’s quantitative easing program; most corporations continue to watch revenue (sales) languish.
It follows that the real Bernanke-led Federal Reserve is not going to taper or slow or exit from its dollar printing and subsequent treasury bond purchases. The conversation has, most likely, been orchestrated to cool down market exuberance. Fed officials tried to talk investors out of excessive reliance on higher-yielding assets earlier in May. Since it did not work, they increased the decibel level on the possibility of winding down “emergency” stimulus. (Printing dollars for buying bonds to depress interest rates is still emergency stimulus, isn’t it?)
Don’t get me wrong… I still believe an imminent 5% pullback is likely; I still feel that we will witness an 8%-12% corrective phase in 2013, whereby the Fed will come to the rescue at the height of fear. If adverse consequences (e.g. extreme dollar devaluation, runaway inflation, etc.) are not readily visible, why not inject the economy with more of the rate-lowering drug than $85 billion? Why not $120 billion? Maybe $150 billion smackers per month!
The S&P 500 is a bit more than 2% below its intra-day record. However, a number of rate-sensitive ETFs are reeling from the tapering talk, including GlobalX Super Dividend (SDIV), Cambria Shareholder Yield (SYLD) as well as Claymore Global Timber (CUT). While I still prefer to acquire any ETF at a support level like the 50-day trendline or 5% below the high, I do not believe the Fed will slow or taper its easing whatsoever. If anything, they will raise the stakes… and that favors yield producers as well as real estate-related industries.
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