Appearance Reality Dichotomy

Despite the attention grabbing headlines of the S&P 500, NASDQ100, and the Dow industrials all hitting new all time highs early this week, stocks closed down by Friday and the Dow (DIA) had a bearish engulfing pattern. Geopolitical tension and a slowing global economy were contributing factors.

Risk gauges backed off to neutral.  The take away is  what appears to be true may not be reality. Equity markets are behaving more like an adolescent than a mature adult, unable to perceive the truth but that could change on a moments notice.

Gold and Gold miners led the charge with GDX ( Gold Miners) up almost 7% on the week. Also noteworthy is that market internals that had been strong, retreated quickly  into negative territory.

High yield debt also retreated versus the safety of US government bonds, indicating risk off.  This is a serious concern as over 12 trillion dollars of sovereign debt has a negative yield. The big question is why aren’t players willing to take on some debt risk as equities hit new highs.

This week’s highlights are:

  • Risk Gauges retreated and now in neutral territory
  • The S&P 500 is showing signs of distribution with a bearish engulfing pattern, weak volume and a close under it’s 10 DMA
  • US long bonds (TLT) continued its bounce off the 50 DMA
  • Semis (SMH) and the Transports (IYT) held up and are leading sectors
  • Russell 2000 (IWM) is back in defensive mode
  • High Yield debt closed weak relative to US Bonds (TLT) and in Risk off
  • Gold Miners are on fire

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