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Marking Time

The textbook bottom I discussed last week, combined with a similarly abrupt recover in bullish sentiment, created a strong recovery that left bargain hunters grasping at straws.

The hallmark of a bull market correction is the short and sharp nature of the move and this one was a classic. The bungee like bounce last week, however, will necessitate a pause before the resumption of the bull market.

Earnings driven moves in various stocks should now capture the market's attention. The rising yields in the various world bond markets will also dominate the discussion.

There is now a self-fulfilling aspect to the rising bond yields as the chorus of calls for rising inflation has reached a crescendo. No move goes uncorrected forever and I suspect the 10 year bond yield may have a hard time sustaining the power climb in has recently been on without a check-back. Reaching 3% should provide a sell-on-news pause point.

The hoped-for rotation to value from growth as a leadership factor has not occurred. This presents a threat to the continuation of the bull as a welcome 'reset' to new leadership would go a long way to keep the market from getting overvalued and crowded. As it is, the chase to own the previous leaders is unsettling as it looks like late-comers chasing past performance.

Patience will be needed in the next few weeks

Risk Model: 3/5 - Risk On

A strong AAII sentiment bounce, a removal of the over-bought condition combined with a RSI recovery has put the risk model back on track.

My ex-partner Adam Bomers has identified a flaw in my use of the 50 week moving average as the indicator for the copper/gold ratio and suggests I use a more responsive 50 day version. He did all the back testing so he should know! That leaves the copper/gold indicator in risk off position along with the most volatile component , the VIX which stays quite elevated.


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