Equity breadth (bullish %) continues to weaken. Transports are a window on demand. $iyt $spy $dia 

Transports look ready to take another leg lower should they break these levels. Barometer portfolios have elevated cash and are hedged with index futures. Should short and long term indicators start to reverse, hedges will come off and cash will be deployed. No sign yet that short term correction has run it’s course. 

Follow thru day?

Unless equities rally to end the afternoon, today will go down as a follow thru day to the downside. The early week bounce appears to be failing. Breadth has been weakening in major indices opening the door to seasonal weakness. Barometer portfolios are hedged with index futures and have reduced long positions over the last two weeks. 

After maintaining a bullish stance since lows in February 2016 we are more cautious in the near-term. Our intermediate term view remains bullish supported by strong fundamentals, solid risk equity premia and cautious investor positioning however longer term corrections can only happen when started by short term corrections. Our job is not to say what should happen, but rather to focus on what is happening.  Listen to the markets message. 

Seasonal weakness is likely to create back half opportunity. With clear leadership themes and low correlations, the current market continues to favour active vs. passive managers. 

Mind the Gaps

Mondays market action was clearly much better than at the end of last week.

Indices and sectors rallied into the gaps that were left when the market dropped Thursday. From here, follow through would be required to become more bullish however, no short or long term breadth indicators reversed back positive with Monday action.

Bullish percent measures have been turning down for weeks around the globe which clearly had little to do with the North Korea news last week. When the news hit, the market were already vulnerable to shock. 

At the sector level, tech had the best bounce which makes sense given that it has been clear leadership during this bull market. Most sectors also attempted to fill the gaps left last week, with a few note able exceptions.

We will continue to watch for indication that recent weakness is resolving however for now, we remain invested with index hedges in place to mute market impact.

See below some key 15 minute charts.



Recent trading ranges resolving…bonds and energy making moves $TLT $TLH $XOP

Much has been made of the recent tight ranges in many asset classes. It appears that we are moving through the end of thes tight trading ranges. 

Bond prices appear to moving lower…bullish for interest sensitives like financials, and industrials. 

And energy shares after consolidating their move up from the lows in January appears to be beginning another move higher.  


All of this bodes well for risk assets as money is likely to start a more concerted rotation from fixed income to equities.