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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:

bberg

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.

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