And now for something a little bit different...in lieu of the normal weekend format, I'd like to offer readers a more abbreviated summary of my views on the coming week in the markets.
Stocks: After a nice summer rally, we can reasonably expect a pullback here. As of this writing, just after the market open, we are seeing a modest weakness on the major averages. What I like: the action in blue chips continues to be strong. What I don't like: the relative weakness in the small caps. I am less concerned by the weakness in the transports, which can be attributed to the move back up in energy prices. Fundamentals like railcar volumes are not worrisome.
Technical picture: With 80% of the S&P 500 above their 50 day moving averages, and the large caps reading overbought, there doesn't appear to me to be much short term upside. Overall take: A small correction or, perhaps more likely, consolidation of the recent gains seems probable. In the longer term, we need to see the small caps begin to participate.
Bonds: The U.S. bond market has been working off some of the excesses built up in the furious rally over the past five months. Rather than signaling the death of the long running bond bull, in my view this should be welcomed by income investors as an opportunity to put money to work at more attractive yields. We are still on hold for our income portfolio, as the correction in bond prices still appears to have some more work to do.
Commodities: There are a several things that I think are going on here: The correction in the U.S. dollar, some front-running of anticipated QE (which touched off a big commodity rally in 2010), and the developing war clouds over Iran. As of this writing oil prices are moving back up, as is gold. I am still not sold on oil, as price has gotten ahead of the fundamentals, and should correct once the geopolitics get worked out. In the mean time there could be a trade here, but it's too risky for my tastes.
Gold on the other hand looks more attractive, at least technically - it's building a base and the 50 day line is now upward sloping. A break above 1,640 would be quite bullish (disclosure - we're long gold).
Currencies: The correction in the U.S. dollar index appears to have run its course in the short term, and most of the major currencies appear to have entered a trading range. Pending some catalyst for the next move, perhaps some sort of blowup in Europe or the Middle East, there is nothing to really drive the markets out of those ranges. This week's calendar doesn't hold much in the way of market moving activities.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.