It's been a choppy week so far and the market has distanced itself from the lows of last week. Are we going to retest them? I even heard questions on Bloomberg radio yesterday evening concerning a re-test of the January lows.
Obviously the market would have to break the lows of last week before we can even consider a move to the January lows.
There remains plenty of excuses to sell. If the market falls today, the financial media has a smorgasbord of headlines to blame the sell-off on. Higher interest rates, trade war, tariffs, and the one that is creeping into the forefront.... Italy.
The central bankers are right... Italy isn't Greece.... its 10x worse than Greece. As it stands now the market is not pricing in the worst case scenario. And perhaps the all knowing market already has seen the outcome. However being saddled with massive debt amid a world where interest rate reality is slowly replacing the Interest rate fantasy world of the last 9+ years, is not an ideal scenario for the 8th largest economy in the world.
The same could be said for all these corporations that have used low interest rates to amass record debt. Low interest rates were supposed to help corporations DE-LEVERAGE.... remember that term in 2008/2009? DE-Leverage! Here we sit some 10 years later with corporations and countries with more leverage than an aging porn star with a non-disclosure agreement.........maybe this chart will help ->>
How can higher interest rates be good for record corporate debt? It clear ly spells trouble down the road. When??? well......
I'm going to stop there. I'm running out of time this morning, and what I really wanted to discuss is the short to medium perspective of the market. I'll continue with my thoughts tomorrow.
Today... its all about momentum. And after some ugly downside, momentum is turning in the bulls favor.
Yes. I say it a lot... perhaps this time is different. But you know what... every time I say that it hasn't been. So maybe this time it will be. But for some reason I have a feeling it won't.
Momentum has turned for $DIA $SPY $QQQ. $IWM is right there. And each instance of a momentum shift has resulted in higher prices for the market.
As such despite all the negative headlines, higher interest rates, Italy... we could go on with more possible excuses for this market to sell off... however momentum is showing a market that is ready to recover more of its recent losses.
$SPY
Small caps were out in front of this most recent pull back. I think they will do the same to the upside. Right now the market is pulling back pre-market. China was down over 2% overnight and is nearing a multi - year low. A massive $NFLX reversal yesterday was not a terribly bullish omen for this earnings season. However we saw financials come back to life yesterday, with Goldman Sachs leading the way. And perhaps small caps and financials will help pull this market back up.
A small cap momentum signal today would add some further confirmation that last weeks lows will not be revisited over the short to medium term, and that the market is setting up for more price recovery into the end of this week and next week.