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Unwinding Sentiment--Lateral To Nowhere--Fed On Deck Next Week......Greece Woes...

Market Overview:

If the market is going to move laterally, it's really nice to see the worst day of the week occurring on a Friday. Leaving a nasty taste in the mouth of those relentless bulls. This is important because it's before a weekend and thus there's too much time to think or in other words, get emotional. Traders thinking we just can't break out no matter how close we get and now they have to go in to the weekend on a down note. Turns bulls in to bears or at least agnostic. We're begging for this and somehow the market knows how to make things happen when it needs it to. Nothing worse than a bad feeling late in the week and if this played out as i think it did, we may get our first reading below 30% on the bull bear spread per Investors Intelligence since last October and only the third reading below 30% in roughly seventy weeks. That's unreal. Hard to make sense of that when you normally would equate this type of behavior in terms of too much bullishness with a major market correction if not a bear market. We haven't come close to even a decent correction. Some pullbacks for sure but nothing that one would feel has been overwhelmingly bearish for equities for any extended period of time. Just nothing in terms of consistent selling that would allow the bulls to shake in their pants for a while. With the prior week giving us a reading just over 30% maybe we'll finally see a 2 as the first number. I know I would like to finally see some real fear kicking in. And not just bulls to agnostic but I would really like to see the bulls turn bearish. Spike that number over 20% with force. That said I'll take any reading that equals below 30% quite happily. The process seems to be very quietly taking place and that's good if you're a bull. The AAII survey came out this week at the largest bearish spread of bulls to bears we've seen in many months at 20% bulls to 32% bears so some of the other sentiment surveys are getting more bearish of late.

So how does one get to be bearish? Or at least calm their bullishness? Stay in a lateral market that continues to let the bulls down every time it seems it's ready for the next leg higher. If you push the bulls too far meaning failure after failure for now almost six months, eventually they'll get annoyed. They'll get emotional and that all happens with a base that never ends, or at least never seemingly does. It's almost six months for crying out loud. It's almost unimaginable that this market hasn't been able to get out of its way without being bullish or bearish for so long. To head fake up and head fake down over and over just when one direction seems guaranteed has to play on everyone's emotions. We are basically the same level we were at the end of December when the Sp printed 2093. That was on December 29th and here we are on June 12th and at the same level. For a long time the bulls simply said it's fine that we're moving laterally. It's healthy. No problem. That way of thinking is going away now. The lateral action isn't bullish or bearish and one has to wonder just how long this nonsense can continue onward but it is what it is and you need to adapt to the base so as to not get overly involved at just the wrong time meaning buying when it looks real good. It's best to buy weakness, not strength. The base is still very much with us and shows no signs of imminent death.


Sector Watch:

While much of the broad market was unchanged for the week we saw a variance in the major groups we track. The Banking sector remained quite strong much of the week closing up 1.6% while many other groups struggled. The Semiconductor group was down a similar 1.67% while the Transports fell by slightly better than 1% for the week. Most Commodity sub groups continue to languish with Coal down another 2.4% making a new multi-year low. Copper was down just shy of 1% while Oil was the one bright spot up close to 2% even though many of the Oil related groups including the Integrated names saw a move down towards new 52 week lows late week. Many sectors will likely pivot next week on news out of both Europe and the Fed so expect some outsized moves in those groups tied to interest rates.


The Week Ahead:

Two relevant features for next week. It's getting closer and closer to doom for Greece as the days pass towards June 31st when they have promised to bundle all their weekly over due payments in to one grand payment. There have been negotiations on going but no progress has been made. Lots of walking away from the table which isn't a good thing. The euro zone is playing big time hard ball here while Greece I think expects the usual white knight to ride on in and save the day and you know what, they're probably right but the euro zone is playing a strong game of chicken here. Lots of anger by the rest of the euro zone. They're tired of bailing out the weak and the sick. They may have no choice but it's getting ugly and this is critical to watch as the days get closer to the 31st. On top of that we also have to watch the words out of the fed at their meeting next Wednesday. Will they or won't they raise rates now. It's highly doubtful but the market is tuned in to every word out of fed Yellen's mouth. Will she hint that one is inevitable in the near future or simply leave things open based on economic reports to come in over the coming months? Every word will be scrutinized. So lots on deck next week that can be a huge market mover. Nothing is really safe. Buying weakness is best. Chasing strength is not. In the mean time we watch the base range from Sp 2040 to 2134 with keen interest as always.

S&P500 Daily Chart

Dow Jones Daily Chart

NASDAQ Daily Chart

Dow Jones US Integrated Oil and Gas Index Daily Chart

SOX Weekly Chart

10-Year Treasury Note Monthly Chart


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