Reluctant Bull | Thursday May 21

Reluctant Bull Market

In the 1980 classic Raging Bull, Jake LaMotta is brilliantly portrayed by Robert DeNiro as an in your face brash talking, chest pumping boxing champion whose self assured aggressiveness in and out of the ring earned him many times over the movie’s moniker. LaMotta was a poster boy for the sport who would never turn down a fight.

He fought Sugar Ray Robinson 6 times over 8½ years!! Where even Rocky had a soft side outside the ring, LaMotta’s hard charging personality was in full gear 24/7/365, reigning havoc not only with his opponents from bell to bell, but with his personal life as well.

Today’s stock market has a personality that bears no resemblance at all to either the Raging Bull of Jake LaMotta, or Raging Bull Markets of the mid 1980s, late 1990s or the final stretch run from 2005 to 2007. The market remains frustratingly reluctant to post a convincing follow on to its recent new highs. This makes crafting a daily game plan frustrating.

Wednesday afternoon, 30 minutes after the release of the FOMC minutes from its April meeting, the S&P 500 was trading at an all time intraday high, NASDAQ was poised to close over 5100 for the first time ever, and the DJIA was on the verge of a 4th consecutive all time closing high.

This was Spike the Football!!, do the victory dance in the End Zone time!! and screw the 15 yard penalty, you’re up by more than 3 touchdowns. That didn’t happen. The market played defense, settling for the smallest possible fractional losses on both the DJIA and S&P 500, while the NASDAQ gained a not worth mentioning 2 points.

The US Stock Market is amazingly timid given multiple new highs on many indices the last week, 90% free and clear of the dreaded 1Q earnings reports, and unfazed by a 60bp+ rise in US 10 year interest rates the last 4 weeks.

It almost feels the market is either embarrassed to celebrate new highs, knowing they have been largely manufactures by 6 years of ZIRP and 4 years of QE, or reluctant to pound its chest in victory, fearful the next major move could be a thumping defeat. Regardless, the muted reaction to many market averages making multiple new highs is way out of the play book for Stock Market Behavior.

Yes, of course, we’ve heard ad-nauseum that the “steady as she goes” lack of celebratory exuberance is a sign that we’re nowhere near the “Top” yet. I seriously doubt that market behavior has completely reformed to a near Vulcan state of emotionless rationality.

We are, after all still talking about US Financial Markets.

The proverbial fly in the ointment may very well be the awful action in the Transport Sector. The DJ Transportation Average, -1.7% at 8504 closed yesterday at its lowest level since October 2014 and is a glaring under performer for 2015 YTD.

While barely holding the key closing level of DJT 8500, the chart has an ominous look, with the 50 day MA about to “death cross” its way through the 200 day MA within the next few weeks. Keep in mind DJT 8500 had also been a major resistance level for most of 2014 before rallying to new highs the last 2 months of the year. 90 minutes into trading today the DJT has held its first assault on 8500 with a gain of slightly less than +0.5%.

This extreme divergence between the Transport sector and all other Major Market Averages Can Not Continue.

This is reinforced by countless market pundits and talking heads in the Financial Media telling us over and over and over again “not to worry” about the Transport Sector Divergence, reassuring us that “It’s different this time”

The more you keep hearing it, the more you should be convinced, its either a big problem for the broad market, or a major rally in the Transports is in the offing.

90 minutes into trading, market averages have fractional to modest gains at best. The NYSE composite, Russell 2000 and NASDAQ are the strongest performers with NASDAQ again sporting the potential to post its first close ever above 5100.

We’re less than 2 days from a 3 day Memorial Day weekend and the stock market historically has a strong showing just before the 3 day w/e marking the start of summer. No one’s going to argue with new highs, but some convincing follow through would be a refreshing start to the summer.

tanderson@mndpartners.com tjanderson56@gmail.com

Twitter: @TJAnderson1

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