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I am Not Aware of Another Period When it Appears one Day is the Mirror Image of the Previous Day.

I am not aware of another period when it appears one day is the mirror image of the previous day.  Friday equites rallied, the seventh consecutive day where the Dow closed over 100 points higher or lower.  The catalyst for the rally…falling dollar predicated by a possible change in the time table of when the Fed will change rates.

I will argue that most of the trading is now dictated by the proverbial machines, trading the most highly capitalized and liquid issues.

I have commented many times about the lack of breadth, breadth that has been narrowing since January/February 2014.  The asset class that has performed is the mega capitalized stocks comprising the popular indices.  For the exception of treasuries, all other asset classes/markets have lagged considerably.

Will there be a broadening of market performers or will the averages soon come under consistent pressure?

It is my firsthand experience that when all are chasing performance at the expense of forward looking thought, where thoughtless indexing is regarded as the pathway  to riches, change will occur.

The most under represented group is commodities. Will funds soon rush into this beleaguered and decimated group?

The supplies for many commodities are from unstable regions of the world, regions that are either totalitarianism in nature or on the edge of anarchy.  It would take little to disrupt supplies, especially in a world that lacks global leadership and its 70 year referee has quit pursuing a domestic agenda.

Moreover, at some juncture there will be an inflationary tipping point because of today’s massive global stimulus, an environment where an unprecedented 19 of the 57 central banks representing about 57% of global production have negative short term interest rates.

It is often penned the most obvious conclusions are those that are ignored.  Will this possible conclusion also be ignored via the blindly chasing performance via closest brainless indexing?

What will happen this week?  There are several inflation, manufacturing, housing and sentiment surveys released.

Last night the foreign markets were mixed. London was down 0.40%, Paris down 0.85% and Frankfurt down 1.23%.  Japan was up 0.99% and Hang Sang up 0.49%.

The Dow should open nominally lower ahead of speeches from several Federal Reserve officials.  The 10-year is up 2/32 to yield 1.93%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.