Views From The Hill

Views From The Hill: August-18-2014

Market rallies sometimes have nothing or very little to do with the macro-economic business cycle and its underlying fundamentals. Instead, they can have distinct characteristics which separate them from others and become the rationale for significant market swings. For instance, the unfolding stock market rally brings to mind a manic depressant who just ingested prozac.

The extant circumstances of this global economic business cycle have not changed. We still have unresolved geopolitical risks in Eastern Europe and the Middle East, but there is an almost fairy-tale like optimism that diplomacy will prevail. The doctors writing the prescriptions are major central banks. Many perceive that the Fed Reserve and ECB will maintain accommodative or dovish policies for unprecedented extended periods. In reality, a bidding war broke out between Dollar General (DG) and Dollar Tree(DT) for shares of Family Dollar (FDO) and sent its stock to as high as $80 per share and the Housing Market Index delivered a strong report at 55 vs. consensus forecasts and prior month @ 53.

On the surface, the SP-500 (SPY) looked like a winner but Time Weighted Volume (TWV) reveals a -8% contraction in buying demand. However, the positive price action in the Nasdaq-100 (QQQ) was supported by increasing demand. Real Estate (IYR) and Healthcare (XLV) remain some of the strongest links in the capital markets, while Energy (XLE) is showing some signs of pluck as well.




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