A surprise move from the Swiss Central Bank today sent currencies into a frenzy. Futures traded erratically for much of the morning gyrating from positive to negative territory. Even with a positive start to the day this market simply could not hold onto gains. Volume was not impressive, but we are seeing some serious breakdowns leading us to believe we have more to the downside left. The only bright spots for this market are Utilities and REITS. We are in a precarious situation with the S&P 500 down 5 straight days. Sellers have completely dominated this market and we are hanging on a thread. Stick with your exit strategy as this market works itself out.
Banks are having a very difficult time as of late. We are half way through earning season and it is not going well. Two banks reporting earnings today BAC and C are just another remainder there is some serious issues with this market. JPM and WFC were the casualties yesterday and carried today. The breakdowns are putting up big red flags.
Sentiment continues to be on the bull camp even with the current volatility. Maybe the last few days have changed a few bulls’ minds, but given the latest numbers are still in the bull camp. AAII Bulls ended the week at 46% and Bears dropping to 21%. NAAIM Exposure index is in the mid-80s as active managers continue to have bullish exposure. II Bulls continue be long and strong. Bears on the survey continue to be non-existent.
The big surprise move was from the Swiss Central bank lifting the ceiling on the Franc. It had been tied to the Euro, but with looming ECB Quantitative Easing program and possible Grexit likely perhaps the Swiss wanted no ties to the Euro. Switzerland has always prided itself to being neutral and one way to stay neutral is to decouple from the Euro itself. One thing was clear from the chart was EURCHF was already in a downtrend and anyone long were trying to swim against the current.
Given all the market turmoil with currencies, banks getting hit hard, and even FB breaking down leads to a question: Are stocks about to Crash? First, no one has any clue if stocks will crash or not. Not to mention how do you define a crash? The trend has changed and odds do favor lower prices. We surmise a 50/50 chance the S&P 500 is down 20% from its most recent high. Imagine the panic at the US Federal Reserve if the S&P 500 is down 20%? We would see QE4 ushered in to save the day. At any rate it will be interesting to see how we proceed from here.
We hope you have a great weekend and enjoy Friday’s session. See you back here next week.
