The market is running at a slow pace today, with the low this morning holding the keys to the kingdom. As we retest the morning low on the Nasdaq 100 at this writing, the S&P 500 is coming in higher – confirmation that this sell-off is rotational. Tech profits continue to be redirected into energy, financials, industrials, and basic materials. The latter sectors are cyclical, showing investors still anticipating growth. Many of the cyclical stocks remain undervalued.
Of course, the market could repeat yesterday and still sell-off. If so, our stops are set at this morning’s low for old positions and 8 points below the entries on the new positions. If the sell-off is contained, as I suspect, we are adding to positions at a good level. If we are stopped out, then a larger correction is unfolding. That would mean either the 20-week has not quite bottomed, or perhaps we are starting early into the 18-month cycle. I can make arguments both ways, but still, believe it is too early for the 18-month to begin correcting.
Australia doubled their bond buys over the weekend, essentially doubling up on their quantitative easing. Bond market participants took the cue positively, hoping the US Federal Reserve will follow suit or give similar comfort. I don’t like all the manipulation – but I don’t make the rules either. What I know is that if 10-year Treasury yields behave, the stock market will behave a bit longer.
A.F. Thornton