Date: August 10, 2015

Bulls Want to Fight

After a clear loss to the bears last week, the bulls closed Friday well off the worst levels of the day and closer to the highs. That price behavior usually leads to some follow through buying the next day. Looking at the five major stock market indices, they look very different, which is not normal. The Dow and the Russell 2000 oddly look the most similar with the S&P 500 and S&P 400 together. The NASDAQ 100 has the most bullish configuration, which makes sense as the likes of Amazon, Facebook, Netflix and Google have been leading that charge.

The stock market is supposed to bounce right here and now, but it is highly unlikely that the bulls have enough energy to go very far. While I do not believe the ultimate bull market peak has been seen, I also don’t think that stocks have hit their intermediate-term low either.

Sector leadership is fragile and junk bonds continue to really struggle. Both concern me, but the junk situation even more so. These bonds are acutely sensitive to ripples in the liquidity stream and very good leading indicators for the economy. We will continue to watch them closely.

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Paul Schatz, President, Heritage Capital