Not All Pullbacks Should be Viewed the Same

The stock market sold off in its continuation of the consolidation phase. No technical damage has been done as of yet. However, we expect some true fear to possibly emerge before this phase is complete. In previous posts we have said that the NASDAQ would still be healthy for a pullback no lower than 2050-ish. After further analysis we have decided that the pullback needs to hold between 2060 - 2070. This would bring the NASDAQ just below its 200-day MA offering a final rinse. We are not predicting this will happen however traders need to be aware of the possibility.

It is important that such a move down is not accompanied by large volume and very negative breadth. Should that materialize the market would indeed be in danger of more drastic selling. So far there are no indications that this is likely to occur.

The stock market is starting to fixate on the rising yields of the long end of the curve. While we recognize this short-term negative implication for stocks we are actually pleased to see long rates finally breaking to the upside. Regular readers know that Your Friendly Neighborhood Kcap Team has been predicting a steeper yield curve over the next couple of years. This event fits in perfectly into our thesis for rotation into high growth stocks.

If You Held a Taser To Our Head:
All-in-all the market seems to be providing us with a normal consolidation. The volatility has increased which is moving stocks from weak hands into stronger hands. Admittedly we would prefer to be seeing better performance from the Semiconductors, especially since their fundamentals seem to be perfectly fine. We are not making any adjustments in our Bullish posture at this juncture but we always reserve the right to slightly trade around our core positions to further lower our cost basis as the volatility presents opportunities.

See You Tomorrow

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