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A Cool-Off In Risk Appetite.

3/30/2014

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Friday, March 28, 2014 (Weekly Commentary)

A Cool-Off In Risk Appetite.

  Major indices were mostly down for the week. Only the Dow has managed to gain 0.12 percent. Tech heavy NASDAQ and the high beta Small cap Russell 2000 were off by 2.83% and 3.51% respectively.

  The large cap $SPX has been range-bound for the past month. A close above 1884 or below 1840 should clarify the medium-term direction of the general market.

  Market Breadth Index, the $VMBI, has been in Bear Warning since last Friday (on the weekly charts). Market breadth improved somewhat on Friday, but as we mentioned before, even a small spike in VIX would send it into Bear Confirmation territory. We have reduced our equity allocation accordingly.

  TLT appear to have broken out to the upside on both the daily and the weekly charts, with a close at $109.37. Strength in the Treasuries further signifies a decrease in risk appetite. We are targeting a move to the $115 area for TLT.

  Gold had a second nasty week dropping as much as 3.5%, before rebounding slightly and closing at $1294.90. Gold has so far retraced about 50 percent of its advance that started at the beginning of this year. Daily charts are showing some support, but more downside is very much possible to around $1260.

  Emerging markets was the big story from last week. EEM finally managed to close above resistance on both daily and weekly charts. We have opened a small position in EEM as a result and will add more should this outperformance continue.

  IYR seems to have reaffirmed support in the $66 area. A breakout close above $68.54 or a breakdown close below $65.89 would clarify the medium-term trend.

  Natural gas rebounded for the week on below-average volume. This rebound may possibly continue higher to the 50 Day Moving Average, currently at $4.81. We still think that the bigger trend is down and a retest of January low at around $4 is probable. Should, however Natural gas close above $4.81, especially on weekly basis, this downwards thesis could come into question.

  Oil rebounded strongly and closed above the 200 DMA also on weak volume. Oil is at a critical junction. A failure here would likely mean that the current support at $97.55 will not hold and a re-test of January low would occur.

  Bottom line: Money seems to be drawn to quality and risk-aversion.

Open positions: GDX (took profits), IYR(took profits), DVY(took profits), ETV(took profits), EEM (new small position), TLT(increased),

Hedging positions: TZA (closed-all profitable), SDOW, DGAZ

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A Second Wind, or Will TLT Sink the Market?

3/27/2014

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Thursday, March 27, 2014

A Second Wind, or Will Bonds Sink the Market?

  The bulls are putting up a valiant fight. $SPX attempted to rally in the morning, but ultimately failed to do so and lost 0.19 percent. It and the Dow printed what looks like a hammer candlestick - indicating decent buying pressure. Looking beyond pure momentum, we see that volume was still greater then normal and the On Balance Volume (OBV) indicator is negative. In the past OBV negativity ultimately triumphed and the market rolled over.

  Market Breadth Index, the $VMBI, is hairbreadth away from confirming bearish posture. (We are currently in Bear Warning). Even a small spike in VIX to, lets say around 15.2, would likely trigger Bear Confirmation.

  EEM managed to close above critical resistance at $40.42 today. We have opened a very small position. Should this rally continue, we will add to it.

  TLT rallied further to $109.99 on good volume. TLT is short term overbought, so a pullback to $108-109 area is possible. This breakout in TLT is bearish for stocks since generally stocks and bonds are negatively correlated.

  If we assume that GDX is more sensitive to the future direction of gold price, then we could say that gold is about to make a turnaround. (GDX gained 1.4% today on good volume). We expect gold to find support in the $1260-1290 area and rally from here.

  IYR is likely to retest the 50 Day Moving average. Should that give, a fall to the $64 area is virtually guaranteed (200 DMA)

  Natural Gas is rebounding, as we predicted. It may continue to do so for a while up to the 50 DMA, currently at $4.80. Should it manage to close above the 50 DMA, we will need to reevaluate our bearish stance on natural gas.

  Oil may be staging a beginning of a rally. It managed to close above the 200 DMA today on a bullish candlestick and decent volume. Next resistance level is in the $102.90 area.

  Open positions: GDX, IYR, TLT (added), DVY, ETV, EEM (new small position)
  Hedging positions: TZA (took profits), SDOW, DGAZ (very small position)

 

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