Biotech continues its woes as small caps lead the way once again. Utilities and Transportation stocks enjoyed stellar days too. VIX dropped further as investors expect future volatility to drop. Although today’s reversal was strong and it was a day where the Fed released its latest meeting minutes volume was light on the session. Our overbought conditions continue to exist, but it doesn’t mean this market is going to fall back to the lows. There are signs this uptrend may have some legs and we need to be ready when long signals present themselves. We will be ready for anything this market will throw at us. Signs are here pointing to this market over the next few weeks pushing higher.
Sentiment has shifted back towards the bullish side. AAII Bulls jumped more than 9 points to 37.5%. Bears dropped more than 11 points. While AAII respondents jumped to the bull camp NAAIM were slow to move back towards the long side of the market. The mean long exposure was only 38.3%. It did jump more than 100% week over week, but at only 38% expect managers to chase performance. This is precisely why overbought markets can remain overbought for a long, long time.
The Federal Reserve is not about to raise rates this year as economic data is weak. It is anyone’s guess where rates will be, but with the Federal Reserve not raising rates it is highly unlikely interest rates will rise much higher than where they have been. It would not surprise us to see the Fed come up with a new QE program. Look out if a new QE is introduced! You will not want to miss that. Stick with the game plan and everything will fall into place.
As we head into the weekend there isn’t much indicating this market is going to head back to the lows. For our longs we have our exit strategy in case we do turn lower. At this point, a little consolidation in light trade would go a long way.
Have a great weekend.
