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My Take On Last Week, And A Look Ahead

First, and apology to readers for missing the weekly full analysis over the weekend. Time, travel and workload finally caught up with me, and some down time with family was a much needed respite. This doesn't mean I wasn't looking at the market action. I did most of my usual weekly research, so here's my quick take:

The "sell in May" meme, which I suspect most of us fully expected, combined with Euro jitters ahead of the weekend's elections, sparked a thorough risk-off move that showed particularly on Friday. One clue: in recent weeks gold had been more highly correlated with equities and other commodities (the risk on trade). Last week it was more correlated with U.S. Treasuries (the fear trade).

A recurring theme of my articles has been the U.S. dollar, the euro, and their correlations with risk assets. Over the weekend we saw European voters reject austerity regimes set up to deal with the debt problems. This would seem to be euro bearish and dollar bullish, on the expectation that we stand to see more easing from the ECB if growth, rather than austerity, becomes the primary policy stance.

So here we are, four years out from the financial crisis, and still seeing weeks where the trading action looks to have been inspired by fear and loathing. The selling of equities was global (except, notably, China and a few smaller Asian markets). How to interpret this? First, I will admit to having been unable to get a good feel for market direction over the last several weeks of trading. When that happens, as it does periodically, I move to the sidelines until the picture clears. That's where we are presently, on the sidelines, watching.

Going forward, I still have not turned bearish on equities, but am not enthusiastic about holding broad indexes either. My position all along has been that investors should be picky about what they hold. We have been weighted toward tech, energy, health care and consumer staples. We're out of energy but still holding our tech and consumer staples, as well as some health care and financial names, because they are holding up rather well. There are quite a few stocks and sectors that are breaking down. It's easy enough to avoid them.

What to look for:

1. SPX to test 1,360 and then 1,340. A failure at 1,340 would open up the 200 day and the October high, both below 1,300.

2. CRB commodities index to hold the 292-295 range. A break below 290 would be quite bearish for commodities.

3. Long bond yield to hold above 3%. A return to a 2 handle would not look good.

4. Constructive action in the bank stocks, particularly the money centers. B of A (NYSE:BAC) and Citi (NYSE:C) broke the 50 day a couple of weeks ago, JP Morgan (NYSE:JPM) broke it Friday, and Wells Fargo (NYSE:WFC) just held it. The banks had been big players in the rally off the October bottom.

That's all for now, good luck and be extra careful out there. We will return to the regular weekly article, with full analysis and charts, next weekend. Thank you for reading and for your support.

Disclosure: I am long BAC.