Equity Market Review


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Summary Comments

As the pages that follow illustrate market internals have moderated in the last few weeks. Even with yesterday’s bounce internals still look suspect. That said we don’t expect any major calamities, however, s ce e e b g se o sta ts since ever big sell-off starts as a minor one, we never ignore any market weakness. o o e, e e e g o e a y a et ea ess We still believe our thesis of a market melt up, brought on by investors returning en masses to equities, is likely. However, we just aren’t sure if this happens from present levels or is there an interim correction first. The latter helping to rebuild the proverbial Wall of Worry. Given the weakness in internals we are leaning towards some corrective wave being more likely in the near-term. The erratic movements in the indices the last few days suggests indecision on the part of investors and typically in our experience indecision leads to lower prices. This is a time to review exposure levels and risk management disciplines on those open positions so sound decisions are being made, rather decisions being driven by market volatility. One caveat, no major support levels have been violated yet, thus while internals may be weakening we have to give the market the benefit of the doubt here with supports still intact intact.

That said, let’s take a look at some charts …

U.S New Highs – New Lows All U.S. Exchanges ‐ with 5 Day Moving Average 


New lows are starting to outpace new highs with more consistency as the 5  day average (green line) falls towards zero.   Signs of subtle erosion.







Equal Weighted Bank and Transports  trailing 30 day % returns
25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 0 00% ‐5.00% ‐10.00% ‐15.00% ‐20.00% ‐25.00% 1/14/201 11 2/14/201 11 3/14/201 11 4/14/201 11 5/14/201 11 6/14/201 11 7/14/201 11 8/14/201 11 9/14/201 11 10/14/201 11 11/14/201 11 12/14/201 11 1/14/201 12 2/14/201 12 3/14/201 12 4/14/201 12 5/14/201 12 6/14/201 12 7/14/201 12 8/14/201 12 9/14/201 12 10/14/201 12 11/14/201 12 12/14/201 12 1/14/201 13 2/14/201 13

When the equal weighted 30 day trailing returns for the Banks and Transports combined is positive equity markets tend to do well. When they drop below 0 markets tend to be range bound or corrective. The red arrow shows after being positive since Nov., this is starting to slip

Fusion Risk On, Risk Off Index with 21 and 50 day moving average  , y g g

Risk Off  Summer ‐ Fall 2011 Risk off Summer 2010 Risk Off  Summer ‐ Fall  2012 Risk Winter ‐ Spring 2011 Risk On Risk On Winter  2012 Risk on 2009  into  spring 2010 Risk On  Fall  2012 ‐ 2012 ?

Markets act better when risk on (high beta, high yield & emerging markets) act better then risk off (Consumer staples utilities health care and low beta) The 21 staples, utilities, beta). day average (red dotted line) of the risk on/off index is close to crossing below the 50 day (green line) for first time since Sept 2012. This would be a negative.

S&P 500 Index (SPX) Index  ‐ Daily Chart with 5 D MA on Highs, 21 D MA on Close 

While still positive the 5 day MA high line (green line) is close to crossing below the 21 D MA closing price line for first time in a while, while RSI momentum wanes.

S&P 500 ‐ Daily Chart y

Major support band on S&P 500 (green band) in the 1,475 – 1,465 range  has not been violated.  If this were to break a deeper correction would  ensue.  For now with it holding you have to give the market the benefit  of the doubt.

NASDAQ 100 Index (NDX) Index  ‐ Daily Chart with 5 D MA on Highs, 21 D MA on Close 

While still is slightly positive the 5 day MA high line (green line) is very close to crossing below the 21 D MA closing price line for first time in a while.

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