Morning Note: Rotation or Harbinger?

Asian equities traded in mixed, by definition, fashion overnight: 8 of the markets we track closed higher, 8 lower. European markets this morning, however, possess no such ambiguity; 18 of the 19 bourses we follow are solidly in the green as I type. US equities are once again starting the day in let’s call it confused fashion; Dow up 296 points (+1.07%), S&P 500 up .21%, Nasdaq down -.80%, Russell 2000 up .94%.

The VIX (SP500 volatility) is down 0.95% to 21.92, VXN (Nasdaq vol), reflecting said “confusion”, is up 2.51% to 30.61.

Oil futures are up 1.96%, Gold’s getting utterly crushed, down $78 (-3.81%), silver is as well, -6.75%, copper’s flat, while the ag complex is split roughly down the middle.

The 10-yr treasury is taking a beating (yield up) while the US dollar index is trading lower by 0.26%.

Now wait, the dollar’s down, gold (not to mention commodities across the board) is getting hammered! I thought gold and the dollar are negatively correlated???

Well, historically they are, but not always, certainly not everyday, and certainly not necessarily in a market where assets are trading on anything fundamental reality.

Our core portfolio, with nearly a fourth of its exposure in commodities, is feeling a bit of pain (albeit mild) this morning as well; -0.29% as I type.

Much has been written the past few days about the apparent “rotation” occurring within the US market, as the monsters (Amazon, Apple [down 1.42% and 1.46% this morning], etc. ) that dominate the Nasdaq Comp Index appear to be rolling over, while the less-loved of late stocks swim higher. The overwhelming couching of this development has been bullish, as it denotes much healthier breadth than we’ve been reporting on herein. 

Well, while I’m sympathetic to that prevailing bullish narrative, considering the present state of macro conditions, I’m a bit skeptical. I’m wondering if it’s not more akin to the toppy action that has characterized the end of bull markets, and bear market rallies, past. Time will tell…

Here’s Edwin LeFevre quoting Jesse Livermore in the utterly priceless classic Reminiscences of a Stock Operator:

Emphasis mine (the bolded sentence should sound very familiar to clients)…

“And there is another thing to remember, and that is that a market does not culminate in one grand blaze of glory. Neither does it end with a sudden reversal of form. A market can and does often cease to be a bull market long before prices generally begin to break. My long expected warning came to me when I noticed that, one after another, those stocks which had been the leaders of the market reacted several points from the top and—for the first time in many months—did not come back. Their race evidently was run, and that clearly necessitated a change in my trading tactics.”

“As I said before, I noticed that stocks which had been the leaders of the wonderful advance had ceased to advance. They dropped six or seven points and stayed there. At the same time the rest of the market kept on advancing under new standard bearers.”

“The end of the bull market had not come, though it was within hailing distance.”

Stay tuned… and, yes, stay hedged….

Have a great day!


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