Markets spent last week gyrating around but eventually leading to very little change in the major indexes – both the S&P 500 and NASDAQ finished with small losses. Considering the overbought status of the previous Friday coming off the Thursday QEinfinity euphoria, that appears to be a victory for the bulls. However, there remains concerns about the action in the transports (for good reason with multiple warnings among key companies) and also oil which was down as much as 7% for the week at its worst. While the latter is a net positive for the consumer in the long run, generally risk markets have run together over the past half decade as correlations among assets increase, and seeing oil diverge like this is certainly something to make a note of.
Indeed it was a tough week for commodities as a whole (ex precious metals)
Gold on the other hand continues to act as you'd expect with global paper currency debasement not only continuing but accelerating.
As for the S&P 500, it remains in a solid uptrend – while no longer short term overbought, it has remained above the ascending channel of the past few months as the index has thus far consolidated recent games via time rather than price.
The Russell 2000 continues to be a leader, not a laggard, as it was for most of 2012 which is an incremental positive.
Under the surface money was rotating last week into defensive sectors, as healthcare and consumer staples saw inflows.
Meanwhile housing stocks remain a star sector
Overall we certainly have an atypical type of rally happening here – while some pro cyclical groups such as housing, autos, and financials are acting well, a lot of the typical areas you'd want to see leading the market (due to actual economic recovery/expansion) such as semiconductors and transports remain weak. In fact the latter is approaching summer lows.
This week marks month end and quarter end, which always leads to some interesting 'herding' behavior. Economic data is relatively sparse this week with things such as Case-Shiller and FHFA Home Price Indexes, pending home sales, and consumer confidence reports dominating. New home sales are released Wednesday with expectations of an annualized rate of 380K up from 372K rate. With the seasonal slowdown in sales approaching it will be interesting to see if any disappointments surface in the months ahead in this sector. Durable goods (-4.5% expected) Thursday morning and Chicago PMI round out the major reports for the week.
Also keep an eye out for more earning warnings as this is the time frame they tend to hit, ahead of October's earnings season – and potentially Spain's "economic reform" announcement ahead of their formal request for aid from the ECB.
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog