Market Lab Report – Premarket Pulse 5/18/15
Major averages finished roughly breakeven Friday on mixed volume. The rise in bond yields has put a lid on the markets as they struggle to attempt an upside breakout. And while commodities and oil in particular have been bouncing, this perhaps can largely be attributed to the recent pullback in the dollar after its huge display of strength between July 2014 and March 2015, rather than a global economy that is turning the corner. Thus, the continued weakness in the global economy implies a continuation of quantitative easing across major central banks. Still, higher interest rates are a concern to investors as this may be a sign the Federal Reserve may be looking to raise rates sooner than later. But even if the Fed delays a rate hike, thus continuing with a flood of QE in the system, banking regulations have put restrictions on banks, requiring them to carry more cash as well as riskless securities, thus banks have less QE-capital to invest in the stock market to push it higher. In addition to the above, prominent bond portfolio managers recently stated that bonds should be shorted as they believe rates will have to rise at some point which added further selling pressure to bonds as other institutions heeded the advice. With all the cross currents noted above, it is no wonder the market has struggled to find direction. On those stocks that were actionable from last week, it has never been more imperative to take your profits when you have them and to quickly cut losses. Walking this “tightrope” certainly requires discipline and is an excellent environment for polishing up one’s trading weaknesses.