It Won’t Take Much


Nasdaq Composite -5.4% YTD

Russell 2000 -2.0% YTD

S&P 500 +0.7% YTD

Dow Jones +1.8% YTD

In last weeks’ newsletter I warned of the possibility of some potential market weakness. The week that just closed was indeed lower, but not a panic situation. I do see some action though that could be a small shot across the bow.

The “risk on” sectors are getting hit, biotech and semiconductors. Technology in general looks horrific.

The S&P did hold key support round the 2040 level…by a thread. It breached the level intraday on Friday, but managed a close just above the level due to an afternoon rally. Expect lower prices fast if we close below that level.

Yellen at the Fed still seems dovish, and it helped her cause to see a weak jobs number on Friday.  The fed funds rate isn’t really pricing in any rate hikes until December, but there are other things that can certainly take the bloom of the rose.  China and Europe still worry me. Also, If the dollar rallies from here, we will see a strong selloff in commodities, which have been leading.  This will pressure the indexes.

The concern now is that low interest rates have lost their effectiveness, this is especially true when it comes to Japan. As they move to a negative interest rate policy, their market seems to just go lower every day and the Yen goes higher. Actually it’s the opposite of what they want to happen.

Earnings have been horrible, down about 7.5% from this time last quarter.  I think a fair amount was baked in, or this market would be significantly lower by now.

We continue to be positioned in select shorts and longs here and I’m staying fleet of foot.

My Takeaway

The bulls re still in charge until the 2040 level breaks lower with some authority. When that happens (IT WILL) I will press shorts and lighten up on the long side. Obvi.

Last Week’s Performance

In a challenging week we managed another outperformance.  Exits included:

DV +5.0%, ICPT +5.0%, EW +16.6%, NUGT +28.0%, SRS -3.7%

The portfolio longs include AGQ +20.0%, MDVN +21.0%, ATW 21.0%

Going Forward
I haven’t seen this many great setups, both long and short in quite a while and i will be initiating positions in these stocks shortly.
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