The reaction to Friday’s employment data should not have been too surprising, because it emulated what has become a fairly consistent pattern in recent months.
The strength in the small and midcap stocks suggests that asset managers are continuing to accumulate with confidence as we saw new all-time highs for the Russell 2000, S&P Midcap and the Dow Jones Transports.
The capital markets are awash with liquidity and, as the low levels on the VIX are also suggesting, asset managers seem very unconcerned about amassing large positions in equities that have higher bear market betas.
Whether the bulls are ready to temporarily concede the agenda because of their inability yesterday to take out the overhead resistance may become clearer in today’s trading.
It would be prudent to keep an eye on treasury yields this week as they approach the 5% level on the five- and ten-year notes. A plateau in treasuries would maintain a positive intermediate outlook for stocks.
Traders are growing more pessimistic that short-term rates have been ratcheted up enough and are reaching the conclusion that the underlying economy is strong enough to keep the Fed erring on the side of further tightening.
Clive Corcoran writes that assuming Bernanke has mastered the art of Fedspeak, we may see the Nasdaq 100 lift off with some help from the semiconductor stocks.
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