Equity Markets calmed down this past week, digesting the mini meltdown on Sept 9. After factoring in the dividend payment on Friday, the S&P 500 (SPY) closed up + .52%. Thanks to Samsung (SSNLF) going up in smoke, Apple (AAPL) roared, lending support to the Nasdaq 100 (QQQ) and US equities in general. Without that tailwind equities would have fared worse.

“Jinchella” Artist M Javier 2005 Photo by Mish Schneider Art Collection

The Apple surge left 295 hedge funds looking not so shrewd, as they liquidated before the run up.Are hedge funds the new contrarian indicator much like the relic Odd Lot indicator? This new indicator might be called The Ackman Indicator.

The markets are behaving like in the man in our wood sculpture who seems to be floating above it all, serene, content, and oblivious to the fact that there his feet and arms are in a reverse twisted position.

Equities markets had some very strong days this week and the Nasdaq 100 was able to regain key moving averages. We were even able to put in two accumulation days which indicate some institutional interest but three core problems still exist.

The first and biggest long term problem is a structural issue. Historically low to negative interest rates are testing the limits of central bankers and their ability to stimulate economic growth which we covered in depth last week.Long bonds got hit yet again this week and did not get a reprieve from the selloff like equities did. The retreat continues from the Brexit blow-off and a 35 year low in rates may have been realized.

Another factor is that long term momentum in US equites, despite eking out new highs in August, broke down in late 2015 and is still lingering with a foul smell in the ether. It would not take much to awaken that demon and trigger a cascade. Short term patterns are not that much prettier either, but that has been the case many times before and has trapped the bears.

Then of course you have the upcoming presidential elections which is turning into a nail biter. Regardless of one’s political view, uncertainty is not a plus. Trying to predict actual Trump policy if he gets elected is not easy.

If we flip to the other side of the coin, sentiment is running very weak and that is a very strong contrary indicator. In fact, cash levels of large fund managers are where they were back at the February lows and actually above levels when Lehman imploded. There is a pile of cash sitting on the sidelines and all that excess liquidity is looking for a home. It might be ok to rent for a while by sitting in cash but it will have to be put to work and the question is when.

Some commodities are on fire like sugar and natural gas. One key risk off indicator closed negative so let’s go to this week’s video and see the specifics.

Video length: 00:17:30