Written by Lance Roberts, Clarity Financial
Due to a massive outage of Comcast on Friday, this week’s update will be a bit brief.
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On Tuesday, I discussed the loss of the “Beer Bet” with my dear friend Doug Kass.
The important lesson learned from my bet with Doug is to be careful how you “word” the bet.
The market did indeed break the 100-dma briefly before rebounding by the end of the day on Monday. However, on Wednesday, the market crashed back below the 100-dma pushing the market into a deeply oversold short-term condition. On the “Real Investment Hour” I stated the market would likely rebound into the end of the week as it was both the end of the month, and quarter, and fund managers would be “window dressing” their portfolios for reporting purposes.
Such turned out to be exactly the case the market virtually “round-tripped” back to where we started finishing the week only 2.06 points, or 0.08%, higher. In other words, if you happened to sleep through last week, you didn’t miss anything except a lot of price volatility.
But last week’s volatility is simply a representation of what we have witnessed since February.
However, despite the market not going anywhere price wise, internal participation continued its decline. As Bob Farrell’s Rule #7 states:
“Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.”
Of course, what spurred the bet between myself and Doug was last weekend’s newsletter wherein I stated the “bulls seem bulletproof:”
“While it certainly seemed as if the ‘bulls are bulletproof,’ it is worth noting that much of the action not only surrounded a few number of participants but also money was chasing the most shorted of stocks.
Nonetheless, in the very short-term, bulls do remain in charge and our investment discipline requires us to ‘follow the action’ regardless of how we ‘feel’ about it.”
Look for a rally early next week as the new quarter starts. The first test will be a break above 2740 which, if successful, would put 2780 back into focus. Use any rally to rebalance portfolio risk for now.
Let’s review where we are now on a short, intermediate and longer-term outlook.
