Mike Zigmont Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B AUM, offering volatility management solutions to its investor base worldwide. Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business

since 2008, sending it daily shortly after the market close.


The opinions expressed below are my own

Tempered optimism? Data and news today was very uninteresting so whatever motivated US equity investors’ behavior today is a little bit of a mystery. I will speculate below but the “why” behind today’s action is unclear. Capital flow was normal at 100% and consumer staples was the worst performing sector today (down 2.2%) while info tech was the best performing sector (+0.2%). It was the only sector higher today. That doesn’t tell us much.

Let’s speculate then, shall we?

Overseas markets were a bit weaker overnight and this morning our futures were implying 10-20 handles worth of downside, depending on when you quoted them. Anyway, slightly bearish winds were blowing this morning and that set the tone for the morning. The S&P had 6 consecutive up-sessions under its belt so a reflexive down day would seem natural. Additionally, interest rates were higher again this morning. US treasuries were higher across the curve. Early on, it looked and felt like higher interest rates were a marginal influence on stocks and the bullish enthusiasm would take a coffee break after 6 days.

But dip-buyers did what they like to do. The S&P was positive on the day by lunch. The gains only lasted until

1 PM.

From that point, bears leaned on the tape and really made some progress in the last hour of trading. During the day, interest rates fell small. Rates are still higher but yields fell from the morning.

I think that’s important because it means that the equity market isn’t taking its cues directly from the bond market. Ticks in rates don’t cause ticks in equities. Rates will still ultimately matter but they weren’t the straw that stirs the drink today.

To me, this all looks like rattled investors, trying to figure out where to settle things out in the short term. The correction left its mark and the market isn’t in a hurry to go back to the all-time highs. The selloff was pretty intense and the bottom dropped out before almost anyone could blink. The market isn’t itching to go back to the recent lows either. The 6-day rally was pretty powerful. Maybe that reaction to the reaction was overdone? I think we have a lot of market participants out there trying to slightly unwind whatever the most recent market move was. I think they’re mostly using charts and technicals as their guides.

The market bottomed off the 200-day moving average AND the 14-day RSI (a momentum indicator). Now the RSI is flat and the S&P is just below the 50-day moving average.

It strikes me as reasonable for investors to think that, bouncing between the 50 & 200 day moving average makes sense for a time. The bulls don’t need to officially give up the long-term trend and the bears don’t have to press. The optimism off the bounce waned and it feels like everyone is happy to wait things out in a range.

Status quo seems to fit everybody’s portfolio for the time being.

See you

tomorrow

,

-Mike