• Comments for January 31, 2017

    Weakness continued into a third trading session yesterday, serving up another negative as large players chose to sit out the afternoon bounce.



    The emini investors of the past few days dumped their positions all at once.



    On a sector by sector analysis, XLV and biotech still attracted money.





    However, industrials and the NQ100 were relatively bearish during the afternoon bounce. This behavior point to valuation based rotation: investor want to stay in equities, but they are moving money from hot/expensive sectors to defensive/cheaper sectors.





    The XLE MF fell back into negative territory with continued afternoon weakness. XOM publishes earnings today. Let's see how the sector reacts.



    We can see below that the US/Japanese rate differentials are still elevated. This means that money ought to continue flowing into US based assets.



    This is what we see for US Treasuries, although I believe that US Treasuries should be under pressure because of anticipated Fed action around rates. However, if there are rumors that the Congress could stall on the new spending package and the tax proposals, this will offer a pretext for the Fed to keep rates low.

    Hence, I believe that US equities are now running more on the basis of a timetable for legislative reforms than on the narrative around executive orders.



    US$/Euro weakness continued yesterday. This is counterintuitive in light of rate differentials running so high.



    However, we can see that most of the sudden Euro dips attracted buyers. This is probably an indication of central banks buying the Euro. I think that the ECB does not want a weaker Euro, which could send a wrong message regarding the strength of the European Union.



    Conclusions:

    While the conductor in chief is furiously waving his baton, the orchestra is still slow at deciphering the musical score. This means that changes (new spending and lower taxes) that are priced in the markets will take time to become enacted into new law.

    On the other hand, I do not think that the market is in danger of breaking, because the selling is neither strong nor uncontrolled.

    Let's see what AAPL and XOM do today.