Friday, May 24, 2013

A Rare 3-Day Losing Streak?

The market is currently lower for a 3rd day in a row.  Normally that wouldn't be very surprising, but this year has been anything but normal.  Over the last 5 months of trading, there has only been one 3-day losing streak in the S&P 500.  Today could be the second occurrence, although its still early in the day.

The above doesn't hold too much significance, imo.  Rather it is just an interesting market anecdote.  The market had simply become too extended, trading at levels more than 6% above the 50-day average, which is rare.  So a pullback was in the cards and well overdue.  That said, we don't expect this pullback to be more than just a garden variety pause that relieves the overbought condition.  We expect underinvested portfolios managers to buy the dip going into quarter end.  If we are due for a larger correction, we would look to the summer timeframe to get more worried.

In economic news, April durable goods rose 3.3% after a -5.9% decline in March.  Ex-transportation, durable goods still rose 1.3%.

Asian markets were mixed overnight.  The BoJ governor said that they don't have a specific target for stocks or currency rates.  But reports out overnight suggest the BoJ was again providing liquidity to the Japanese bond market.

Europe is also trading mixed to lower today.  The second estimate of Germany's Q1 GDP held at 0.1%.  Not very good for the country that is supposed to be the glue of the Eurozone.

Commodities are lower again.  Gold prices are down near $1386, and silver and copper are lower as well.  Oil prices are weaker to $93.50 and ag prices are lower.

The 10-year yield is slightly below the 2.00% level.  And the volatility index is 4% higher today at 14.65 but still below the 15 level that we have been watching.

Trading comment: We are using this 3-day dip to continue to add to equities.  We trimmed more of our fixed income ETFs and have added to stocks such as ARCP, EOG, and URI this week.  Should the market continue lower next week we would look to do more of the same.  Our forecast is that the market will pause and consolidate here but will stage another advance into the quarter end timeframe.

KAM Advisors has long positions in ARCP, EOG, and URI


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