WHAT’S ON TAP?
This is the biggest week of the quarter in terms of earnings. 29% of the S&P 500 will be reporting and 750 companies in total report. The docket is loaded with energy and materials firms. Adding to this is a heavy slate of economic news:
- Monday: New home sales
- Tuesday: July Conference Board Consumer Confidence, S&P/Case-Schiller Home Price Index
- Wednesday: June durable goods orders, Federal Reserve Beige Book, weekly crude inventories
- Thursday: weekly initial jobless claims
- Friday: Advance Q2 GDP, July Chicago PMI
The government is auctioning off an incredible $115B in short-term notes next week. This could create the risk of higher yields and a skittish stock market. At some point the demand for bonds is going wane and yields are going to spike.
The risks in this market are rapidly increasing. There is a deep feeling of complacency in the market. The latest AAII sentiment reading came in at 38 – a fairly neutral reading, but up substantially in the last two weeks. Meanwhile the recent rally has been on very low volume and very questionable fundamentals:
The rapid decline in the VIX and Yen also have me feeling a bit uneasy about the current move. The majority of the strong tech firms and banks have released earnings. Now we’re moving into the real economy names – energy, materials and consumer related names. I don’t expect the news to be nearly as good as we get deeper into the earnings season. We’re also moving into a seasonal period that is very weak for the stock market. Investors always try to anticipate the scary month of October by getting out in September. We could see a repeat this year, especially considering the disaster we saw last year. This is a fast moving market. I’ll adapt with it, but for now, I am standing pat on my bullish stance with the expectation of short sellers capitulating at some point in the next week or so. That will be your chance to move to a neutral position or get short. Stay tuned.
What is the potential rise from here? All the way back up to 1,200 in one week?
Rob, I’m looking for 1,000, but the market has a funny way of stalling around large round numbers. Buyers could be a bit hesitant much over that level. I am looking for an exit strategy early next week on the long side. Probably move to neutral or low beta and take it from there. No set-up to go short yet though…
Perhaps the stock market volume is so low now because only certain type of investors are trading in the market while others are staying out.
People who use only technical analysis don’t care about the fundamentals much. They will buy just because the stock market broke through a resistance level. And they will sell just because the stock market broke down through a support level. It doesn’t matter to them that unemployment is going up. And it doesn’t matter to them that the profits companies are reporting might not be sustainable due to declining company sales and gross revenues.
And if long-term investors who use fundamental analysis are staying out. Then there is no diversity of trading strategies in this market. Everybody is using the same technical signals to buy and to sell. They are all short-term traders. And this doesn’t bode well for the time when these investors are 100% invested and have no more cash to buy more shares with.
Staying invested for years and years is not their cup of tea. They will sell. And they will sell all at the same time.
fyi, many of my hedge fund buddies are still all cash, they have not traded the market for months and months, they are in the wait and see mode (most since last sept/oct) I presume they are waiting for the smoke to clear.
E,
I am hearing the same thing. Small investors are mostly out of the market still as well.
Any chance they drive the market down this week to scare people into buying all those treasuries being auctioned this week?
hedgies want to stay in business = preserve capital….what i am hearing is….”this is not a market to be in”….”nothing makes sense”…..”have to wait it out for more certainty”…..”will wait for the constant climb once the smoke clears”….”conserve capital”….”we are doing nothing”……”people (hedgie employees) are encouraged to take vacations”….
if the professionals dont want to play…then what?
this totally explains the low volumes this spring and summer
IMHO, next week will be about the dollar (see UUP) and whether it makes a bottom. If it does then markets will retreat (earnings are simply background noise).
If most players in the market are simply trading on technicals then that explains the giant run up over the last two weeks. Short interest was rising as everyone was talking about the head and shoulders formation and breaking the neckline. Every commentary I heard was about a probable test the lows due to the broken neckline.
Were the last two weeks nothing but a giantic short squeeze? Or did Merideth Whitney scrare people into chasing the market higher. The bipolar nature of the market was unsettling to say the least.
The other thing which is unsettling is that all the major world markets are moving in tandem (ex China and India). On Monday, July 13 the markets in Asia were all down big (they closed before the infamous GS buy recommendation that was the supposed thing that moved the US markets higher.) I believe the European markets had started down that day as well and then reversed. The US markets started down and then quickly reversed and steadily rose picking up steam during the day. The rest of the next two weeks all markets rose together. Are all markets trading on the S&P 500 technicals / earnings surprises?
Regarding Merideth’s comments, I didn’t see the interview until after the markets had closed. I watched the whole thing. She clearly made a buy call on GS, said the banks would have a near-term windfall from mortgage modifications, but was otherwise relatively bearish on the banks longer-term (just a short-term trading play on earnings surprises) and was quite negative on her opinion of economic prospects (13% unemployment, etc). I fail to understand how that reversed the downtrend moved the entire world’s markets higher.
If the dollar crashes and goes to 1.50 will the markets spike higher?
Would anyone be buying aggressively at this level? The risk / reward relationship seem poor to me.