Weekend Market Commentary: Sunday Edition

September 21st, 2014
in Gary's blogging, Special Post, syndication

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Weekend Market Commentary: Part II: The Top Is Near! (Or So Some Say)

UPDATED: 0900 EST 2014-09-21

Yesterday we discussed some of the many signs this market may be topping but what are the 'signs' we should be watching out for. There are 'signs' that pose a significant risk to investors and we need to know what they to be more informed of an approaching 'problem'.

Are there signals that will give us some sort of an advanced warning of a market turnaround. The answer is yes.

Follow up:

The US dollar has risen to a new six-year high and that poses a risk many do not understand and ignore. Chief economic adviser at Allianz SE and former Pimco CEO, wrote late last week, 'that market participants are under-appreciating the destabilizing forces that can come from large currency moves'.

Stock investors are ignoring a major new risk on the horizon

Why isn't more money changing hands in global equity markets?

That's the question asked by Jefferies chief global equity strategist Sean Darby in a series of recently published notes that survey the markets. In recent months, investors have seen a parade of market-moving events that should have prompted them to dial up their brokers.

Flattening yield curve? Check. Falling commodity prices? Check. Increasing foreign exchange volatility? Check.

As Darby wrote last week, "the recent, sweeping changes in exchange and commodity markets amount to significant cross-border wealth transfers that should have seen equity market volumes surge."

All of these are signs that stock investors should be keeping an eye on the U.S. dollar if they aren't already.

It is sometime best to read up on everything when in doubt as we are looking for facts and need to consider all of them to make an informed decision. To blindly go where the "Sheeples' go is a recipe for disaster, but it is also signal to run the other way too. The author below says, "The market will turn at some point, but we need to 'see the evidence' rather than anticipate it.'

Dow Theory: Yellow Flags Or Green Light?

  • Dow Theory had something to say about Wednesday's rally in stocks.

  • Dow Theory speaks to perceptions about the economy, valuations, and Fed policy.

  • Does a possible shift in Fed policy matter?

How Can This Help Us?

Everything we do revolves around probabilities and an uncertain future. The new highs in the Dow and Trannies tell us investor confidence in earnings, economic activity, and Fed policy is better than it was a few weeks ago when the Dow was unable to sustain a new high. Sustainability is still important.

If the new highs are followed by weakness and a retreat below 16,368 on the Dow, it brings us back into a lower investor conviction realm. The longer the Dow stays above 17,138, the better for the bulls from an "odds of good things happening" perspective.

Eric Parnell, CFA , has stated, "I think something has been rotting in equity markets for a long time now. My primary concern is what the rot looks like when it finally reveals itself after so much time.

The continued withdrawal of the Fed and the eventual arrival of interest rate increases present a huge challenge for the markets in the months ahead. I suppose the question is what is real versus perceived and where exactly the inflection point in investor behavior lies in the months ahead."

In my opinion, ZIRP is what keeps this bull market going. Kick in an interest rate rise and the market will puke! What are your thoughts? I would love to hear from you.

"The stock market has recovered so sharply for so long, you have to assume somewhere along the line we will get a significant correction. Where that is, I do not know." - Alan Greenspan, July 30, 2014

(Follow Closing Market Averages at end of this article)

WTI oil closed Friday at 91.68 -0.30    (-0.33%)

Brent oil closed Friday at 98.26 +0.56    (+0.57%)

The Demon The Gold Bears Are Mistakenly Overlooking

Gold closed Friday at 1,217.10 -9.80    (-0.80%)

Copper closed Friday at 3.088 -0.006    (-0.18%)

US Dollar closed Friday at 84.88 +0.48    (+0.57%)

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Written by Gary


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