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Market Recap – September 12, 2014
A combination of fundamental and technical factors contributed to falling U.S. stock indexes on Friday. The S&P 500 fell 0.60%, NASDAQ lost 0.53%, the Russell 2000 erased Thursday's gains to close down 1% and the Dow dropped 0.36%.
Bond prices continued to correct on expectation of higher rates with the 10-Year Note yield rising to 2.61%, up 8 basis points just on Friday. Crude oil prices erased a good part of the gains of the previous day with spot light crude losing 1%. Precious metals weakness continued mainly due to the strong dollar with spot gold losing 0.77% and silver dropping 0.48%. The U.S. dollar was steady to slightly lower versus the Euro to close in New York at $1.2967.
Comment: Friday's drop in stocks was due to a combination of factors that included falling energy prices, weal short-term technicals and retail sales and consumer sentiment data in line with expectations that re-ignited speculation about rising rates. However, there is also the geopolitical crisis factor that is constantly downplayed by the financial media but in reality it is of major concern to investors. The probability that there will be some type of economic war due to the situation in Ukraine and possibly increasing geopolitical instability is low but it is slowly increasing due to the fact that little has changed in the strategy of all parties involved. Therefore, the position of this blog is that an adverse development due to this crisis for reasons not quite known or understood at this point could cause a large decline in stocks for a few days or even weeks. The probability is not high for that but portfolio insurance may be necessary at this point along with exposure reduction. Note that no technical indicators, including the HURST exponent that is updated at the end of this report suggest a serious correction but such corrections are usually not driven by technicals or indicated by them in advance.
Short-term Technical and Quantitative Analysis
The profit target in the IYR high probability setup was hit Friday as this ETF dropped 2.88%. There is a new high probability short setup today in another ETF. There is also a new open position. The updated setup table below shows 3 open positions, one long and two short, and 4 short setups that are pending: