Date: August 11, 2014

The Bounce The Bounce The Bounce

In the spirit of Herve Villechaize telling Ricardo Montelban on Fantasy Island, “Da Plane Da Plane Da Plane”, here is the bounce, the bounce, the bounce.

After writing about the market bouncing and what was “supposed” to happen in several posts, stocks cooperated on Friday with what has been described as a “huge rally”. I am always keenly aware of what questions I am asked by the average investor as well as the comments. Over the weekend, folks I spoke with were in more of a celebratory mood,  believing the pullback is over and all time highs are in store this month.

I hope to have a Street$marts out later today, but in short, the evidence does not suggest an immediate return to all time highs on the way to Dow 18,000, at least not yet. I am watching a few different scenarios which I will share shortly after I am able to eliminate one.

With the anticipated bounce here, it’s important to watch how far price rallies and what the market internals suggest. High yield bonds were hit very hard and if they do not bounce very hard, that will indicate a more complex and deeper pullback than just 5%. Also, with so many sectors seeing significant damage, this bounce is vital for the intermediate-term trend.

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Paul Schatz, President, Heritage Capital