A Discombobulating and Coincidental Pullback We said yesterday before the open that the stock market was in a funk, and by the close it made us look good for doing so. The major indices struggled again under the weight of broad-based profit taking that culminated with a very weak finish. The S&P 500, however, is currently indicated to open slightly higher. It is amazing to us how quickly the market can go from feeling sky high to feeling so discombobulated. Remember, the S&P 500 was at a record high on Friday, yet by yesterdays close the narrative was dominated with questions as to why it is suddenly falling apart. Thats what happens when sentiment, instead of earnings, drives the market. We said as much in the latest installment of The Big Picture column that was published on Friday. Worries about Chinas growth rate have come and gone and now they are back again. Worries about valuation have come and gone and now they are back again. Worries about geopolitical dealings have come and gone and now they are back again. Its all very coincidental just a few days after the S&P 500 hit a record intraday high that left it up 6.0% from its intraday low on August 6. Think about that. Six percent in basically six weeks time. Now, consider these factors: The weak after the quarterly options expiration in September is often a weak period The market is coming off an emotionally-draining week that culminated with the largest IPO in history Fund managers are probably feeling inclined -- if not obligated -- to take some profits to protect nice-looking performance records going into quarter end; and The market is in that twilight zone between the earnings warning period at the end of a quarter and the start of the actual reporting period two weeks after the beginning of a new quarter The stock market was indeed ripe for a pullback and we are getting one. Just about everything is down so far this week, especially the Russell 2000, which has dropped 2.5%. The notable exception is the CBOE Volatility Index, which has surged 23.3% as it seems money managers are scurrying to re-initiate hedges following the recent jaunt to record highs. The S&P futures are actually up about five points at the moment and are trading 0.1% above fair value. Germany reported some weak survey data on business conditions, Goldman Sachs cut its GDP growth forecasts for China, and the US is of course still tangling with ISIS. In other words, participants arent seeing a lot of reason to fear the policy tightening reaper. That was clear in yesterdays 2-yr note auction and it could ultimately act again as the safety net in this pullback, which is both discombobulating and coincidental at the same time. Source: Briefing
Posted on: Wed, 24 Sep 2014 13:05:47 +0000
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