Rev's Forum: Strong Open on the Way, but Reasons for Skepticism Exist

 | Jun 19, 2017 | 7:38 AM EDT
  • Comment
  • Print Print
  • Print
Stock quotes in this article:




"The essence of strategy is choosing what not to do."

--Michael Porter 

The indices are set to start the week on a positive note as European stocks celebrated an easy parliamentary victory by the party of Emmanuel Macron in France.

Asian stocks are doing well on hopes that China A shares may be included in global indices and the hawkish talk from Janet Yellen about "normalizing" the Fed balance sheet is being forgotten. The surprising Amazon (AMZN) acquisition of Whole Foods (WFM) is still reverberating as well.

The indices struggled some last week primarily due to the Fed interest rate announcement, but such news typically has been shrugged off fairly fast. The only time the Fed really has pushed the market down was back in January and February 2016 when the Fed maintained a hawkish tone while the market was worried about the global economy. The Fed eventually shifted to a more dovish view and that led to the uptrend that has been in place since then.

The bears have been growing increasing confident recently as they believe that the combination of Trump's political issues, slow economic growth, stretched valuations and negative seasonality finally are going to produce the first real correction since the presidential election in November. The bears have been gloriously wrong so far, but they are convinced the day of reckoning is fast approaching.

I've taken on some index shorts recently, not because of the fundamental arguments expressed by the bears but because of some deterioration in the price action. Last week the numbers of new 12-month lows exceeded the number of new 12-month highs on at least one day and we continue to see underperformance in many of the FAANG and high-momentum names. There has not been good leadership lately and I simply don't see many setups in individual stocks.

My view of the market is mostly a function of the action in individual stocks, and for the most part the action has been uninspiring. That doesn't mean it can't quickly revert, but I plan to be very selective with stock picking and will be looking for an opportunity to press index shorts.

One important event that occurs this week that doesn't receive much news coverage is the rebalancing of the Russell indices. Thousands of stocks are impacted by this change. The most prominent of the indices is the Russell 2000 small-cap index. At the close on Friday there were hundreds of large blocks crossed, but all week long brokers and algorithms will be accumulating and selling shares in anticipation of the closing trades. If you are trading small-caps be aware that unusual volume may be a function of the Russell rebalancing this week and that there may be unusual volatility as a result.

We have a strong open on the way, but we haven't had a gap-and-go start in a while. There has been an increased tendency lately to sell strength.

Columnist Conversations

We will take off some more risk, bank some winners SOLD PG OCT 90 CALL AT 3.3 (in at 2.90) ...
After a very calm and sedate period of volatility which saw the VIX fall not only to all time lows but had a r...
today is a good day to lighten the load and take some positions off the table. SOLD WB OCT 85 CALL AT 11 (i...
I reached out last week to my close friend Ken Shreve, who is a prominent writer for the IBD.  I asked Ke...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.