An Incomplete Roadmap

Here’s what I think…

This past weekend I laid out the case for a pause in the rally that began the week of Thanksgiving.

Beneath the surface of the stock indices themselves, a narrowing of leadership began to asset itself beginning in late January. Momentum was slowing and defensive sectors began coming to the fore throughout February. All of sudden, tech dropped off the new highs radar and materials started to act like, well, like materials again.  This coincided with negative divergences in both core and peripheral Europe. We got some nasty data out of Europe on the economic front and then all hell broke loose in the Italian election headlines.

Today, we’re seeing a boost in the risk-on cohort, small caps, cyclicals and high beta are doing their level best to finish the month out with pizazz – all of this is textbook from a tape reading standpoint.

But!

I maintain the following:

Breaking all-time highs for the Dow and S&P should not be a walk in the park, especially with five years between peaks. We shouldn’t be able to just rip through to the upside – we should be forced to earn it. This means bumping up against overhead resistance, a few false moves and maybe even a headfake 7-10% correction before we’ve built up a big enough head of steam to convincingly break through. Happens all the time in individual stocks and what are markets if not a collection of them?

The broadening top in the Dow that everyone sees may be just that – sometimes the crowd gets it right after all.

Narrowing leadership is still an issue. I watch the NYSE summation index to gauge this and I’m not loving what I see at this moment.

Sequestration’s impact on the economy will be real – not catastrophic but absolutely real. I believe that public companies will use this event as an excuse to lower expectations for Q2, Q3. They’d be stupid not to.

The headlines emanating from the rolling fiscal cliffs from March through May will foster an atmosphere of increased correlation and market whippiness – a minor league version of 2011’s risk-on, risk-off atmosphere.  This will lead to many short-term traders getting chopped up and all kinds of opportunities for fear-mongering in the press. prudent investors will ignore it all and stay the course.

Markets peaked out early in 2011 and 2012, it will be no surprise if we follow this seasonal pattern.

The worst thing in the world would be a quick drive higher here with utilities and consumer staples leading. It would make the correction worse because more dollars will get sucked in.

At a certain point this summer or fall, it will become apparent that the Sequester – while short-term painful – wasn’t the worst thing in the world and that the economy, the consumer and corporate profits were able to weather it and make it through to the other side. Along with having the Fed on hold, this could set up the next leg higher with housing leading the recovery followed by increased hiring.

But the headline hurdles in front of us still must be surmounted, there is more work to do as estimates and expectations fall in line with reality, in my opinion.

And so we chill out and watch with mock amusement as a few million people get either too bullish or too bearish at exactly the wrong moments over the next few months. We keep our favorite holdings on the equity side of our portfolios, ignore the noise and await a better time to add more exposure.

This is an incomplete roadmap based on data, intuition, street smarts and experience. Things can and will change, of course, but right about now this posture seems to be the correct one.

Read Also:

Broadening Top in the Dow Industrials (All Star Charts)

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

What's been said:

Discussions found on the web
  1. harmonica game commented on Dec 12

    harmonica game

    […]we came across a cool internet site that you simply may appreciate. Take a appear in the event you want[…]

  2. ขายผ้า commented on Dec 12

    ขายผ้า

    […]that could be the finish of this report. Here you will locate some sites that we assume you will appreciate, just click the hyperlinks over[…]

  3. Powerful clit vibrator commented on Dec 13

    Powerful clit vibrator

    […]although web-sites we backlink to beneath are considerably not associated to ours, we really feel they’re basically really worth a go by way of, so possess a look[…]

  4. Best Penis Extension commented on Dec 13

    Best Penis Extension

    […]we prefer to honor a lot of other world wide web web-sites around the internet, even though they aren’t linked to us, by linking to them. Underneath are some webpages worth checking out[…]

  5. best anal desensitizer commented on Dec 13

    best anal desensitizer

    […]one of our guests recently encouraged the following website[…]

  6. Less Of Tour commented on Dec 14

    Less Of Tour

    […]always a big fan of linking to bloggers that I appreciate but really don’t get a whole lot of link adore from[…]

  7. mp3 song commented on Dec 15

    mp3 song

    […]although sites we backlink to beneath are considerably not connected to ours, we feel they are really really worth a go by means of, so have a look[…]

  8. commercial carpet cleaning services commented on Dec 15

    commercial carpet cleaning services

    […]we like to honor many other net web sites on the internet, even if they aren’t linked to us, by linking to them. Underneath are some webpages worth checking out[…]