Four weeks of market rally but does it feel that way? After all, the high in September of 1220 was just exceeded a couple of times this week. Mind you Friday’s close seemed quite bullish but let’s remember how these rushes have recently ended – badly. Market breakouts like this are normally there for the picking with a ‘buy the dip’ mentality. So do we throw caution into the wind and dive in?
Are we dreaming things will get better?
Sentiment seems to be quite twisted now, which frankly bodes well if you can grit your teeth and stomach some volatility. I generally thrive in this type of environment, letting others worry about macro issues while I dig down deep for some nice winning trades. Let the concerns be debated by others, I’ll take care of business. Well this time around I find it much tougher to ignore the mainstream issues such as Europe, China growth and our own domestic problems. The noise is loud and a major distraction. The jury is still out on the market and while it may be pointed higher markets at an eleven week high is probably not the best time to enter new positions. (See chart below).
By and large companies have been beating expectations. Some 70% have exceeded the bar when reporting the 3rd quarter numbers. Guidance for coming quarters has mostly been positive too, a welcomed surprise. However, without much leadership from financials, technology and commodities – the stalwarts from the previous rally – it will be difficult to move ahead. Oh sure we have some sprinters such as healthcare, retail, energy and industrials but I would like to see more broad participation. And volume – let’s talk about it. The turnover has mostly been absent since the beginning of the month, which tells us institutional sponsorship is lacking. That may change soon.
The macro issues have been front and center for months. A resolution is likely at hand but let’s not put the cart before the horse. If/when the Europeans get their act together is when we may find some return of a sane market environment. With meetings and a plan on the table perhaps it’s much closer than we think. Be mindful the market may have anticipated such a result. In that case, let’s wait for our moment.