Mark Leibovit: Seasonal Pull Back Due

Posted by Mark Leibovit - The VR Platinum Newsletter

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unnamedThe Nasdaq Composite Index also climbed to a record, with materials producers leading gains as copper and aluminum advanced. Housing stocks surged after the largest U.S. builder delivered earnings, while engineering firms gained as President Donald Trump took steps to advance construction of oil pipelines. Banks jumped as the yield on the 10-year Treasury note climbed back above 2.45 percent. Crude topped $53 a barrel.

While politics continued to sway financial markets as a U.K. court ruled parliament must vote on any Brexit plan. Donald Trump sought to cajole U.S. automakers to build plants in America and vowed to renegotiate the Keystone XL and Dakota Access pipelines. Investors also turned to a slate of corporate earnings that began to show signs that the economy was on firm footing at the end of 2016. D.R. Horton Inc.’s results come amid data showing rising home construction and a pickup in demand as mortgage rates start to climb. The first reading on last quarter’s U.S. economic output is due Friday.

Investors replaced Monday’s cautious tone with a risk-on attitude. Why not? It was ‘Turnaround Tuesday’! The change of heart was most obvious in the Treasury market, which lost all of Monday’s gain as the 10-yr yield swung seven basis points higher to 2.47% after losing the same amount the day before. The U.S. dollar faced a similar dynamic, with the U.S. Dollar Index (100.34, +0.39) adding 0.4% after succumbing to selling pressure on Monday.

Generally speaking, investors traded Treasuries for stocks, but they were more specifically after growth-sensitive equities as all six cyclical sectors outpaced the broader market. Materials led all sectors with a 2.5% gain, setting the pace early following DuPont’s (DD 76.05, +3.27) positive earnings report. The stock jumped 4.5% after the company beat earnings estimates and announced that its merger with Dow Chemical (DOW 59.64, +2.50) is expected to close in the first half of 2017.

A ways off from the materials sector was the financial space (+1.2%). The sector ended in second place after many of its top components recouped some of the losses suffered at the start of the earnings season. Technology, the only sector with more influence than financials, finished the day 1.0% higher after strength in chipmakers sent the PHLX Semiconductor Index higher by 2.0%. In the broader tech space, Yahoo! (YHOO 43.90, +1.50) was the most notable advancer after reporting favorable earnings results following yesterday’s close.

Economic data was limited to December Existing Home Sales:

Existing home sales for December decreased 2.8% from November to an annualized rate of 5.49 million units while the consensus expected a reading of 5.55 million. The key takeaway from the report is that inventory constraints, rising prices, and higher mortgage rates remain a key obstacle to stronger sales activity.

I am still in the camp that probabilities still favor a seasonal (cyclical) pullback between now and mid-February, but we’re not short (having covered our inverse ETFs on Monday) and awaiting renewed bearish technical signals. With the SPX and Nasdaq into new highs and most other indexes with the exception of the Russell 2000 on the verge of breaking out, patience is the key. That said, followers of my VR Cannabis/Vice, VR Gold Letter and VR Platinum portfolios know we’re remain committed to recommended positions.

…also from Martin Armstrong:

What About Collectibles?