More disappointing economic data hit the market prior to the market open and after. An initial effort by sellers pushed the market to its lows, but by 11am buyers found their way armed with more than 5 billion in stimulus from the Fed’s POMO. Even as buyers found their way into the market during the last hour of trading sellers regained the power position knocking the market near session lows by the close. Volume on the NYSE was tracking inline with Friday’s level while the NASDAQ was tracking well behind due to MSFT and AMZN. The big story of the day outside the FOMC two day meeting starting tomorrow was the absolute bludgeoning Chinese stocks took today. While they aren’t the entire economy one does have to take note after big run-up’s as of late. Not a bad day by the markets after racing to new highs, but there are some troubling signs with growth stocks underneath. We remain in an uptrend, but remain disciplined in our process.
The move in Chinese stocks and a few growth names does smell a bit fishy. It is quite possible the move in these names simply means the market is rotating into new names. We aren’t about to speculate whether or not this is good or bad for the market, but something we are keeping a close eye on. Typically, this usually means rotation in new leadership and we’ll be on the look out for new names if this is the case. It is always best to obey your disciplined approach like ours. In the end, it will be what will save you in the end.
There is much hoopla made around the Margin Debt levels on the NYSE. Many point to the past two times Margin Debt increased (2000 & 2007) coinciding with major market tops. We may be in the midst of a top, but does anyone really know? Why can’t Margin Debt continue to go higher along side the market? Sentiment is bullish, but we aren’t near 2000 and 2007 sentiment levels. Here is Margin Debt as it relates to the total Market Cap of stocks:
There is no denying we are at lofty levels especially when compared to the 2009 lows. One measure is CAPE developed by Robert Shiller. AQR head spoke about it here:
Essentially given the level of the CAPE expected returns from the stock market is limited. With that said, there is always opportunity if you have the right system in place. We do. Come join us.
