Market Commentary for the week of June 7, 2010

Man or machine?

While technical anomalies might be the root cause of recent market behavior, there is no denying that their effect is to exaggerate downside expectations for market performance.  Whatever optimism might be engendered by short upticks in the S&P, the broader economic landscape is full of reasons to believe otherwise.  Ultimately, either fundamentals or expectations will win-out, but proof needs to be tangible for the markets to reverse their current bear cycle.

Relative strength configurations are moving laterally and providing no traction for momentum indices to gain strength.  Most trends, in fact, have reversed any of the mini-rallies of the past few weeks.  While I am not predicting a break below current support levels, the data clearly indicates a lateral-to-negative configuration.

The profile that is emerging is that of a global marketplace that suffers debt poorly, lacks consumer demand, and is struggling mightily to find “diamond in the rough” new industries to fix what ails sagging consumer sentiment.

The only constant is that the finish line remains far down the road and somewhere near the completion of a major bear cycle that currently envelops us.

In or out?

It is not clear what the tipping point might be that gets us out of neutral.  The good news is that there always exists a “counter-cyclical” variance that is working while the prevailing trend is moving in a different direction.  In today’s case, while consumer equities are languishing, the defensive metals (gold, silver, etc.) are flourishing.  Hardly a scenario for “spreading the wealth,” today’s defensiveness looks more like a “hoarding of the wealth.”  This is not a time to be speculating on banks or retail stores.

A further pullback in equities is likely.  Virtually every stochastic (relative strength) integer I review is topping.  The next stop is to test support with significant velocity that we either hold or begin anew an intermediate downside consolidation.  Based upon current activity, the next cycle is overdue.

The worst part of these data analyses is that consumer complacency has heightened almost to the point of seizing the markets hostage.  Against that backdrop no one wants to hear my theories, or anyone else’s, for that matter.  “Hard data analysis” is simply another catch phrase for “more bad news, and I don’t want to hear it.”  This is particularly difficult since I am always looking for upside adjectives and modifiers to transact in my work.

Up or down?

 

But the reality is that response is tepid, markets are uncooperative, and no one seems to be addressing the root causes of diminishing profitability, poor equity performance, or peripheral “exogenous noise” that just gets worse every day.

After taking a financial beating in 2000, 2008, and 2010, markets are logically quite sanguine about a rebound in prices necessary to create a reversal in the bear.  To be sure, there will be pockets of capital gains successes.  That, however, is not a substitute for peace of mind.