After Friday’s stellar gains after the November jobs report was released it appeared the market was ready to rocket higher. Last Wednesday and Thursday’s action was not ideal looking very suspect. We certainly preached some caution, but did not bail like many we saw on social media. There are reasons to remain cautious here. One certainly is the high distribution count across the board. Price action is not the greatest up here as we continue to see the market’s unable to push into new high territory. Leading stocks continue to act okay, but a few are showing some cracks. Nothing a few days of positive action can’t take care of. Until then, we will continue to keep position sizes in check as well as obeying all exit signals.
A negative for the market is certainly what we are seeing from the high yield market. JNK and HYG continue to act really weak. The correlation between the price action and the equity market is pretty strong. Trouble in high yield markets tend to be a precursor to equities. Given the size of high yield debt in the energy sector it is no surprise the entire group is having a tough time. Worse, if anyone is levered long holding high yielding energy bonds is definitely not sleeping well at night. Keep an eye on JNK and HYG as we move closer to next week.
Next week of course is the next Federal Reserve meeting. Majority are counting on the central bank to raise rates by 25 basis points. There are cases to be made on both sides of the coin here. Low rates have helped plenty of corporations to take on low cost debt. More notably, many are using debt to buy back shares of stock improving earnings per share. A shame as this money is not being put to productive use in the markets. Whatever the Fed decides to do we will be ready.
Not that start to the week the bulls wanted to see. At least today’s volume came in lower and the market avoiding a day of distribution. Stick with the plan.
