What does not make much sense is that fundamentals are poor (prospects for earnings growth) while there is still much faith in the power of the printing press to prevent the world ship from sinking. In short, companies and individuals are making full use of lower interest rates to refinance debt and hunker down by cutting costs and spending until better days come by. In the meantime, liquidity is flowing into US assets simply because of interest rate differentials.
It is very difficult to short US assets when the natural flow of money works against this idea.
Even HYG and JNK do not point to a distressed situation for junk bonds. HYG's TEV pattern is pulling back to its up-trending average and JNK's TEV pattern does not look like the distressed mode of December and February.
Money also continues to support the Mammoth stocks.
There is no indication that this market will break, although it can always do so without warning.
Last Thursday, energy showed a healthy reversal, while sellers did not rush back into the biotech sector.
Most puzzling is the divergence between the VXX ETF and the VIX Futures. I have no clear explanation as to why traders would buy the VIX Futures and not VXX.
Where do we go from here?
That is always the difficult question. The market is still overbought, but we can see below that the Money Flow of the 20DMF broke below its average trend line. This occurred while the average MF line was relatively high (above 0.5%.)
Since March 2009, when this has occurred, the market became "negative-trendless" for the following 10 days.
Conclusions:
The market will probably stay range bound for the coming week and it will be really difficult to extract profit except maybe by buying oversold biotech companies that might bounce (same idea as last week...)
