I am now seeing a rash of "ok now to buy the correction" strategy pieces. It is true that we
have witnessed a "garden variety" type price correction. Moreover, I have been looking to see
what traders might do if the SPX fell 5% below its declining 25 day m/a. It did so this week
and there was a minor bounce. Finally, on Fri. just passed, House Speaker Boehner (R-OH)
indicated that revenues were on the table re: the fiscal cliff issue. That comment served to
cool fears that the US would head pell mell right over the cliff into deep austerity. So, since
the market has hit a more respectable oversold, there may be some positive carry into the
coming week, so long as nothing else of material consequence intervenes ( Gaza, bad vibe
on the Sunday talk shows etc.). I note as well that the Fed moved in late in its reporting period
last week to buy a large slug of MBS as well as some Treasuries. That probably did not go
unnoticed by traders (and was also overdue).
However, the SPX did experience a fast breakaway down move in recent weeks and it is
often the case that the market can bounce after the quick break down only to move back for a
retest of the low to verify support is really there. Keep that in mind.
I have linked to the daily SPX chart and you will note the top panel features the relative
strength of the SP 500 against the long Treasury. I would be watching this carefully as well
since the economy is sluggish enough to keep my weekly and monthly fundamental indicators
for the long T price in positive territory. How sluggish are things? Plenty. When the US economy
is humming along at a moderate pace my coincident economic indicator should be running
around +3.0% yr/yr. The reading for Oct. was +1.2% -- low and sloppy.
SPX Daily Chart
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!