Market Whets Appetite Again!

Over the last 10 years, the market bears had expected higher interest rates to become a catalyst for a deeper market price correction. It’s hard to argue with the logic behind this thinking. The market rose continually, fueled by mountains of cheap capital.

Over the last few weeks, bond yields climbed to levels that we had not seen over the last few years, changing the character of the price correction. Instead of staid, unidirectional price movement, the market having recorded strong closings all January long, over the last 4 trading days we saw intraday reversals with weak closes.

At the same time, the market reversed course on Friday, crushing the bears who had expected this pattern to continue. It was classical computerized algorithmic movement, hoodwinking the bears who were sure that the interest rate concerns would continue creating downward pressure.

This coming week, investors will listen intently to the congressional testimony of the new Fed Chair, Jerome Powell, which will certainly ignite a lively debate about interest rates. The problem for bears will be that the computerized programs have already proven that they can overcome significant economic hurdles like these. The market will only fall if the computerized algorithms consent.

On a technical level, the S&P 500 traded at the upper edge of the trading range at which it has traded of late. There are not an insignificant number of stock charts that are stretched – which doesn’t have too much bearing on reality save the fact that the manner in which things developed on Friday leading up to the closing bell is set to rile up some of the bulls all over again. The market closed strongly for the second consecutive time on Friday, despite the fact that there are certain apprehensions and that investors would usually have preferred to close positions towards the end of the trading week.

The Dow Jones succeeded in soaring 1.4% on Friday, and closing the week up 0.4%. The S&P 500 capped off the volatile trading week up 0.4%.

This coming trading week, even though the earnings season is fizzling out, the spotlight will be on the retail sector with the earning reports of Macy’s (M), Kohl’s (KSS), Nordstrom (JWN), Foot Locker (FL), and J.C. Penney (JCP).

We have to give the bulls the benefit of the doubt, but the market has been working overtime to surprise us and keep us off guard!

Have a great trading week!