Market Update: Macro Rumors And 'Risk Off' Indicators In Context; Avoid The Obvious Trades

[First appeared on Seeking Alpha on June 17, 2012]

Although the market ended the week on a high note, by trading up through the 1,335 level on the S&P 500 (SPY), macro news continues to be the catalyst for moves in both directions. In general, investors should be cautious when the market jumps around based on the latest piece of news from Europe. However, we have noticed some diverging dynamics in the "Risk Off" indicators that we review on a weekly basis.

In general, we are becoming wary of the obvious trade, which has been to sell risky assets because of the European crisis. The European crisis is not new, which means that more and more of it is being priced in. The upcoming market action will likely continue to be dominated by macro factors, especially the Fed meeting on June 19-20. Still, we are trying to decipher what is already priced into the market so that we avoid making the obvious trades.

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Market Update: 'Risk Off' Indicators Retreating; S&P 500 Holding The Line

[First appeared on Seeking Alpha on June 10, 2012]

The title of our update last weekend was Market Update: Indicators Flashing 'Risk Off' But The Real Test Is Next Week. Following the S&P 500's (SPY) decline through its 200 day moving average, we wanted to see if there would be follow-though action to confirm the downward move. The market was indecisive on Monday and Tuesday, before staging a big rally on Wednesday and ending the week flopping around on Thursday and Friday. At the same time, many of the "Risk Off" indicators that we analyze on a weekly basis seem to be in retreat, which is a good sign for the bulls. Last week's market activity seemed to us more bullish than bearish, but we are still cautious.

We begin this update with a review of the recent market activity. Then we will review our weekly "Risk On / Risk Off" indicators, which give us a better understanding of the macro environment. Finally, we will discuss the bull and bear cases for the market going forward and our investment plan.

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Market Update: Indicators Flashing 'Risk Off' But The Real Test Is Next Week

[First appeared on Seeking Alpha on June 3, 2012]

The market reached a multi-month low on Friday following the weak jobs report. The S&P 500 closed at 1,278, corresponding to 128 on the SPDR S&P 500 ETF (SPY), representing a 10% decline from its recent highs. The narrative has now shifted to fears of a European crisis, especially the potential for Greece's exit from the Euro and problems with the Spanish banking system, as well as slower growth in the U.S., Europe, China and other parts of the world.

We start this update with a review of the market's 10% decline from its April high to Friday's close. Then we will review our weekly "Risk On / Risk Off" indicators before discussing the bull and bear cases for the market and our investment plan.

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Market Update: Analyzing 'Risk On / Risk Off' Indicators After The S&P 500 Rebound

[First appeared on Seeking Alpha on May 28, 2012]

The S&P 500 (SPY) entered the week following a 6-day losing streak, three straight down weeks and the Facebook (FB) IPO let down. However, it managed to rebound in a week dominated by macroeconomic news and fears. The fact that the market could stop its decline in such a negative environment seems like a positive sign going forward; however, it will be difficult to sustain a rally if macroeconomic news continues to dictate trading action.

As we noted in our update last week (Market Update: S&P 500 Trading Range Breakdown And Key 'Risk Off' Indicators), the S&P 500 broke down from its trading range between 1,350 and 1,425, corresponding to 135.00 and 142.50 on the SPDR S&P 500 ETF. With the downward momentum building throughout May, it seemed like the SPY was heading toward its 200-day moving average at approximately 128, which was also near the bottom of the trading range from the first part of last year. However, the market rebounded and closed the week at 132.10.

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Market Update: S&P 500 Trading Range Breakdown And Key 'Risk Off' Indicators

[First appeared on Seeking Alpha on May 20, 2012]

The real story of the moment is the 5-day decline in the S&P 500 last week following the trading range breakdown. The S&P 500 entered the week at a critical juncture, at the low end of its 1,350 to 1,425 trading range, corresponding to 135 to 142.5 on the SPDR S&P 500 ETF (SPY), as we noted in our previous update (Market Update: JPMorgan And Europe Bad News Drive Market To Trading Range Bottom).

The market responded with five days of declines and the SPY closed the week at 129.74, clearly below the previous trading range.

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Market Update: JPMorgan And Europe Bad News Drive Market To Trading Range Bottom

[First appeared on Seeking Alpha on May 14, 2012]

In our update last week (Market Update: The New Trading Range And How To React) we discussed the trading range on the S&P 500 from approximately 1,350 to 1,425, which corresponds to 135 to 142.5 on the SPDR S&P 500 ETF (SPY), as depicted in the chart below. Interestingly, the bottom end of this year's range was the high end of the range during the first part of last year.

Last week we expected that the market would test the bottom of the current range, which is where it spent most of the last few trading sessions. The market will now either maintain the range or breakdown from it. We are preparing for either scenario to play out and will adjust our portfolios accordingly.

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Market Update: The New Trading Range And How To React

[First appeared on Seeking Alpha on May 7, 2012]

In our market update last week, which can be found here, we discussed our observation that the market is not rallying through the current earnings season like it did in February when Q4 earnings were released. After a strong rally, it seems that the market is settling into a trading range between 1,350 and 1,425 on the S&P 500 (SPY). Following the declines at the end of the week, it looks like the market may test the bottom of this range. If a breakdown from this range emerges, the market could see sharper declines in the near term.

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