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Market Lab Report - Premarket Pulse 2/20/18

Major averages finished mixed on mixed volume. Futures are currently trading lower as a pullback would not be a surprise after the market shot straight up from lows. There was also a distribution day on the S&P 500 which is unsettling because it occurred relatively quickly, namely on the sixth day, after the rally off lows began. Prior to the recent correction, markets had not corrected by more than a few percent since June 2016. The recent correction was the fastest drop in 80 years which may be an indication of institutional capital exercising high caution in the face of the record levels of debt that must be unwound.

The V-shaped bounce in the major indices is still vulnerable to sharp pullbacks or even a possible retest of prior lows given the speed at which the market corrected. 20-year bonds as noted by TLT are still unable to bounce as the bond bear market is underway. With indications of rising inflation, the Fed is being squeezed by a rising CPI and PPI as rising inflation forces their hand to maintain an aggressive stance on rate hikes even when economic conditions remain fragile. This could unfold in the form of stagflation where you get persistent inflation without growth in a rising rate environment. In other words, hiking rates in the face of a tenuous economic recovery could hamper the recovery, stopping it in its tracks.

Meanwhile, QE has led to corporate buybacks shooting to all time highs. This exaggerates corporate earnings and acts as another catalyst that fuels this QE global sovereign debt bubble. Near historically low interest rates have made massive stockpiles of money available to companies at very low cost, and they've used some of it for share repurchases.

Ultimately, keep your stops tight as volatility still remains at elevated levels, but keep an eye out for buying opportunities should any constructive pullback be reflected in a Wyckoff undercut & rally or voodoo low volume set up observed in a fundamentally sound stock.
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