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MLR - PMP 10/15/14

Major market averages attempted a bounce yesterday after futures gapped up sharply at the open, but ended up closing in the bottom 1/3 of their respective trading ranges, not at all a strong showing. Volume was higher across the board with the S&P 500 and NASDAQ Composite closing slightly higher and the DJIA closing fractionally lower as the morning gap-up was sold into.

Defensive groups performed well including utilities and REIT stocks, a classic sign of a weak market. A spiking put-call ratio had found market floors since January 2013 when QE3 began until this recent selloff which cant seem to find a floor. But the put/call ratios have remained well over 1.0 for days now, staying above 1.0 all day yesterday despite the market's initial rally, suggesting systematic hedging rather than outright fear. This indicates the tone of the market has changed away from the reliance on QE3 to the fear of no more quantitative easing after it ends this month. Meanwhile, the Fed has pledged to keep rates at unusually low levels for a prolonged period, so expect more jawboning from them as they attempt to soothe the markets from undoing what all their easy money programs have done since 2009. The Fed has a number of tools at its disposal so expect talk about launching such a tool should the stock market downtrend continue.

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