Still in that nauseating trading rage but a couple of important changes!

Support held Monday morning at the lower end of the trading range leading to another jack to the upper end of the trading range. The swiftness tells you how paper thin the trading is…both ways. But we think the market hit a near term high at resistance on Friday…which probably leads to some more pulling in here. Yippee. Simply put, a break out of this range by the major indices, either up or down, will have consequences. To the upside…good…to the downside…bad. Duh!

Underneath the surface, it remains a 50-50 market where half the market is blah while half the market works…thus the reason for the trading range. But…seeing a few things changing you need to be aware of.

While bonds remain in a long-term bull market, the recent high looks to us as a good short-intermediate term high. Bonds have been on a tear.

Off the move in bonds, we think the interest-rate sensitive areas of utilities and reits have also put in short-intermediate term tops as many names are breaking below support areas.

While gold and gold stocks have had a good relative bid, we think the short term has turned down. We will now watch to see where support comes in.

Watch housing stocks as a few look poised to break out of long trading ranges. This group has been dormant for a while.

While our thoughts of a rally in oil-related issues came to fruition, we think they are close to petering out as they have come into resistance areas.

To put it mildly, trading ranges are your friend and your enemy at the same time. They are your friend because the time allows bases to form over a longer period of time in order to potentially break out. They are your enemy if you are impatient as the markets bounce around giving nothing but headaches.

Lastly, our two cents on Brian Williams! There is little doubt in most eyes that this man played with the truth…and maybe that is being too nice. But to us, the bigger problem remains what we have been telling you for a very long time. That is the utter corruption of the national mainstream media as they pick and choose winners and losers based on ideology by mis-reporting, under-reporting and not reporting whenever it suits their cause. We can give you a laundry list of all this nonsense but gather you know the list by now. There is no longer holding people in power accountable…that’s unless they do not like you. That’s when the attack dogs come out with teeth gnashing. When you are liked, you get away with anything.

GARY ON THE MARKETS CHURNING UP HERE!

A lot to digest this week as underneath the surface, a lot of jello moving on the plate…and it is not in a good way.

While the major indices are at or near recent highs:

The small caps continue to woefully underperform. This theme has been going on for months.

Bearish action can be found in:

AUTOS,CONSTRUCTION MACHINERY,COAL,ENERGY,GAMING,GOLD/SILVER,HOUSING,INDUSTRIALS,
METALS/ORES,RESTAURANTS,REITS.

Toppy action can be found in BIOTECH and SEMICONDUCTORS. These two areas have led…so they will be important to watch. There is potentially a classic double top in the SEMIS. This is a pattern that shows up AFTER a big move in where a high is made, a drop takes it down…and a secondary high is hit at or near the first high.

While the major indices at or near recent highs, amazingly, new yearly lows outnumber yearly highs.

Our proprietary survey of stocks in good shape versus bad shape continues to woefully lag major indices.

We would like to add a few other things to ponder.

The bond market looks to have topped as yields are now heading north. This move topped out the REITS badly in the past week and probably the UTILITIES. This should be watched as the Fed has had its way with rates by printing trillions. To her credit, Yellen has been rolling it back…with more to come this week. The question is whether she will blink if we get a decent correction and just start printing again.

Sentiment remains a joke…meaning no bears. As we have stated numerous times, the numbers we follow are at multi-decade lows. One has to go all the way back to 1987 to find them…not kidding.

Do not get us wrong. There is still plenty working. In fact, big FINANCIALS have been starting to move out of range. As short rates stay down and long rates move up, margins expand…thus the reason for this move higher. We shall see if it lasts. On top of FINANCIALS… AIRLINES,CHEMICALS,HEALTHCARE,HOTELS/TRAVEL,INVESTMENT BANKS,RAILROADS,RETAIL and TRUCKING continue to act well.

We just believe the market may have been churning in the past week or so. Churning usually changes a trend. One good down day will start sending the major indices back down to the 50 day average where there will be a big test. That said, one good day could take us out of range for another leg up but with a lot of warts. We suspect it is the former.

GARY ON THE MARKETS

We will have a bigger report over the weekend but had a couple of thoughts today.

The market trades tight in here. There is a case for churning in where the market trades with no progress…leading to a change of near-term direction. There is also a case for this being the pause that refreshes before higher prices. Instead of being in one camp or the other, we take the stance of NEXT MOVE WINS. We suspect the next move will happen soon enough as volatility has contracted. So get ready! More over the weekend.

ICE GETTING THINNER!

Let’s just add Tuesday’s action to the “ice is getting thinner” category.

We have outlined for you how many names, how many sectors and how many countries are getting in trouble. Under the weight of all this, eventually, the popular indices follow suit.  Remember, we have not had a 10% correction in more than 2 years. 10% corrections are a normal part of market business. They serve an important purpose. They wipe off the smiles of the bulls…they clear the decks for higher prices and for a hard working stock operator, they enable one to decipher the potential leaders for the next move higher. This is done by consistently gauging the relative strength in the market of those companies that have the strongest earnings and revenue growth. Our biggest issue is the boom and bust cycles created by the fed leading to larger than normal moves up…and of course, larger than normal moves down. Remember, the two times the Fed stopped printing money over the past few years, the market went down 17% and 21% respectively. After the 21%, Mr. Bubble went “all in” with his gargantuan $85 billion each month. Let’s hope any move down is contained as finally, an adult is running the Fed and rolling back the maniacal money printing. Small caps are close to 10% already. A 10% correction in the DOW would take you down to approximately 15,300 Dow and S&P 1800. Again, we are not saying this is going to occur. We are saying it is waaaaaaay overdue and have to be on alert as the market’s internals continue to head south.

On the other end, we must take notice as to how strong China is right now. A quick glance at the FXI or the HANG SENG index will show this. Again, we are always on the lookout for relative strength but be rest assured, if our markets suffer more damage, the rest will follow to a certain extent. As usual, day by day!