I was really glad to get out of January and escape that volatility. Unfortunately, February did not turn out any better with a retest of those January lows. I am ready for February to be over as well.
It seems like we have been chopping around in the 1800-1950 range for a long time but there have only been 40 trading days in 2016. That seems like an eternity when every other day is a triple digit move in the opposite direction. I am ready for this volatility to be over and a bullish bias appear.
I know we rarely have a trend that goes straight up but at this point I would be happy just to have an upward trend. The last ten trading days would work well if we could string 20-30 days together in a row. There was some sideways consolidation and a couple of decent declines but they were followed by more gains. That is how the market is supposed to work.
Obviously, we do not get to pick the market we want and we have to play the cards we are dealt. If I was playing Blackjack with this deck and counting cards I would be betting on a string of face cards in the coming weeks.
The rebound out of the February low was much stronger than the rebound out of the January low. It was also led over the last week by the Russell 2000 small caps and over the last month by the Dow Transports. Both of those sectors had been severely beaten down and both tend to lead the broader markets.
If we can get the Russell to continue its gains over the coming weeks the broader market should tag along. Handicapping the Russell and the Nasdaq is the lackluster performance of the biotech sector. The Biotech Index ($BTK) crashed into a bear market starting on December 31st. While the biotechs have rebounded slightly they are far from bullish. If the sellers run out of stock soon and the pressure is lifted that could help the Russell and the Nasdaq.
The Dow Transports have rallied +16% since the January low but they are facing some tough resistance and the airlines and railroads may have reached a peak. The airlines rallied as Zika faded from the headlines and the railroads rallied on a bounce in oil. Unfortunately, oil is not likely to bounce enough to really do the railroads any good until late in the year. If the transports roll over again it could drag on the broader market.
The economic calendar for next week is led by payroll reports and manufacturing. The payroll reports are not expected to be strong but as long as they are not weak the market should be fine. The ISM Manufacturing Index has been in contraction for four months and is expected to continue that string. This is already factored into the market.
The G20 meeting in China ended without any global agreement on economic stimulus but the meeting was seen as successful. The S&P futures opened up +3 on Sunday night and the Japanese Nikkei opened up +1.6% so that could be a sign China will also open positive.
There is a lot of darkness before morning and anything can happen.
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