MLR - PMP 4/4/14

Published : April 4 2014 at 8:40 ET

Major averages fell yesterday on lower volume. The S&P 500 had hit new highs followed by yesterday's lower volume pullback while the sharply divergent NASDAQ sold off nearly 1% on volume that by the end of the day roughly matched the prior day. Numerous former leading stocks continued to get hit, including big-stock names like Facebook (FB), creating a situation where a de facto bear market has existed in the former leaders throughout the past month while bigger, slower NYSE-based names keep the S&P 500 propped up. How this divergence eventually resolves itself in the indexes remains to be seen.

Janet Yellen also recently reaffirmed that quantitative easing is here to stay until the economy has clearly turned a corner which includes significantly lower levels of unemployment. “Recent steps by the Fed to reduce the rate of new securities purchases are not a lessening of this commitment, only a judgment that recent progress in the labor market means our aid for the recovery need not grow as quickly,” Yellin said. “Earlier this month, the Fed reiterated its overall commitment to maintain extraordinary support for the recovery for some time to come.”

This morning's jobs numbers came in at 192,000 new non-farm payrolls, below expectations of 200,000, perhaps a number that can be seen as "not too hot and not too cold."
Thus, the Fed will find ways to keep interest rates at unusually low levels for a "prolonged period." This is also the status quo for other major central banks around the planet. This implies that minimal corrections to the major averages could continue for a prolonged period despite the Fed and other central banks having painted themselves into a corner since the global economy has not substantially improved as of yet despite unprecedented levels of money printing. Perhaps it will be a very slow recovery at best.

We all know that market tops can take a lot longer to form than expected. For example, the markets finally topped in late 2007 despite the very few who some years earlier said there are big issues with subprime real estate mortgages which could lead to a massive credit crisis. Then there was Alan Greenspan who gave his infamous "irrational exuberance" speech in 1997, yet the market did not top until March 2000. Then there was the roaring 20's. And the list goes on.

We will continue to look for further evidence that a top has been reached though at present, the uptrend in the major averages seems to be resuming in a quiet way just as the uptrend has after past minor corrections since January 2013. In the meantime, it seems as if it will take a change in global policy to kill this bull market as the saying "Dont fight the Fed" could be said to read "Don't fight the Feds."

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