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But as we know all too well, these things can remain quite fluid as to when and where one could say that things are back to "normal". Because of this, we should continue expect continued high volatility for at least another week or so, and it wouldn't be too surprising if this recovery period extends into quarterly expiration which is due on September 18th.
In what was another highly volatile week in the markets, the sellers eventually wound up being the big winners as the major market indexes were down, on average, by a solid 3.03% from last Friday's closes, with the broadest measure of market activity, the New York Composite Index, leading the way to its lowest weekly close since October 16th, 2013 and bringing the total percentage decline from the May 15th peak to a little over 12%. Looking at our breadth charts array for this week and we see that the NYSE Composite, NYSE Common Only, NYSE Specialty CEF and NYSE Preferred advance/decline lines all moved in compressed sideways patterns while prices attempted to consolidate the "crash like" losses seen just the week before. The biggest news, however, came with the BETS indicator as it moved to its lowest level since the March 6th, 2009 bear market lows with a reading of -70. Given these new lows in the BETS during this period of breadth consolidation highly suggests that we still have some unfinished bearish business still needing to be done over the next couple of weeks. Looking at the interest rate sensitive issues of the equity markets and we see that we're getting some mixed signals as we move closer to this month's all important Federal Reserve meeting coming the week after next. The NYSE Bond CEF advance/decline line continues to move within its rising range of higher lows and higher highs, while the yield of the 10 year note looks to have snapped back to what was its previous rising bottoms line. As long as this A/D line continues to move higher, interest rates are likely to move to the downside, and this would suggest that the FED will remain unchanged on current interest rate policy. With that said, however, both the High Yield and NYSE REIT advance/decline lines continue to show a definitive pattern of money leaving both of these areas of investment. This would suggest that the FED is likely to tighten sooner than later. Taken together then, and it might be that the Bond CEF's may be hiding the larger weakness being maintained in the High Yield and REIT numbers as it being the beneficiary of some short term defensive allocation strategies as equities continue to weaken, and by extension, the FED will go ahead and raise rates by at least a 1/4 point on the 17th. The alternative is that there will be a short term delay to this switch in the cost of money because of stock market volatility, and the FED will move to raise rates before the holiday season moves into full swing at next meeting on October 28th. Either way, money flow is insisting that we're likely to see a move higher in the Discount Rate before the end of the year...and maybe the Fed Funds rate as well. Helping to confirm the likelihood of a rate increase comes with the XAU and PM advance/decline lines where both finished the week making new all time lows in their money flow patterns. This alone highly suggests that the FED will maintain its stranglehold of liquidity to the financial markets for the unforeseeable future, and metals prices will continue to suffer because of it. Because of this, we remain highly defensive toward this asset class until instructed to the contrary. Looking overseas, and we see that the weakness in the precious metals asset class continued to weigh downside pressure in the Aussie advance/decline line as it finished the week at new all time lows. This downside leadership in the direction of money flow will continue to put negative pressure on the All Ordinaries Index over the next couple of weeks. Moving west to India, and we see that the BSE advance/decline line continues to show a short term pattern of declining tops, but it remains in a rising configuration overall from the lows seen back March of this year. With prices in the BSE 500 Index moving to lower lows on Friday, it would appear that much of the market action of late is more in following the lead of global exchanges than it is of money moving into other areas of investment. One idea for this dichotomy right now between breadth and price in the BSE could be that traders are using the recent run up in liquidity levels to close positions to fulfill any allocation imbalances created by the weak global market climate. In any event, as long as the rising bottoms line on the BSE A/D line continues to hold intact, we should see this basket of stocks firming and then reversing higher first as we look for the puzzle pieces that would eventually fit with any price bottoms that will later come along here in the United States. Over in Europe, we continue to see weakness overall, but there is some indecision as to which country would be the best choice to where one would see the greatest total return of capital. The DAX advance/decline line continues to look like the weakest market right now, while the CAC advance/decline line the strongest, and the FTSE advance/decline line falling somewhere in between the two. Because of this struggle that we see between all three of these major indices in their effort to attract capital, the most likely short term expectation is for all of them to move sharply to the downside to fully flush out the weak hands in a concerted effort to reset things so that all three bourses are in better agreement moving forward. So...it was another good week for the sellers as equity markets continue to suffer due to ongoing global capital restrictions...by the FED here in the United States, and by China's recent moves in their great experiment in trying to control both equity and economic market activity. With many momentum indicators continuing to show negative structures in their intermediate term patterns, let's go ahead and maintain our fully defensive posture toward all equity related investments for the time being, and we'll see how all of this will sort out next week as we head into this month's quarterly OPEX period that's due the day of the next FED policy announcement at the end of week of the 14th. Have a great trading week! US Equity Markets : US Interest Rates : US Real Estate : Precious Metals: Australia: England: France: Germany: India: __________________ Dave's LinkedIn Profile Technical Watch Twitter Page Technical Watch Facebook Page "As for it being different this time, it is different every time. The question is in what way, and to what extent" - Tom McClellan "An economist is someone who sees something happen, and then wonders if it would work in theory" - Ronald Reagan "What we see depends mainly on what we look for" - John Lubbock "The eye sees only what the mind is ready to comprehend" - Henri Bergson “Answers are easy; it’s asking the right questions which is hard” - Dr. Who - 1977 "You know the very powerful and the very stupid have one thing in common - they don't alter their views to fit the facts, they alter the facts to fit their views (which can be uncomfortable if you happen to be one of the facts that needs altering)" - Dr. Who - 1977