This past week saw the markets retest its lows. So far, those lows have held for now but the deterioration in market internals suggests that the danger is not over as of yet. As I stated earlier this week:

"As you will notice, the reflexive rally, and subsequent failure, have tracked the original predictions very closely up to the point.

With the market once again very oversold on a short-term basis, it is likely that the markets could manage a weak rally attempt over the next few days. The good news is that such an attempt will provide individuals another opportunity to reduce portfolio risk accordingly."

"While the mainstream analysis remains quite bullish on the underpinnings of the market, the ongoing deterioration of market internals and fundamentals suggests something more pervasive. The chart below shows the previous post-financial crisis corrections following the end of Central Bank interventions."

"As you will note, each correction was contained within a Fibonacci correction band of either 38.2% or 61.8%. It was at these correction points that the Federal Reserve responded with some form of monetary intervention or support."

With the Federal Reserve still hinting at raising interest rates, but trapped by weak economic growth, will the next big move by the Fed be another form of monetary accommodation instead? Or, are the underlying dynamics of the economy and market really strong enough to shake off the recent weakness and continue its bullish ascent? 

This weekend's reading list covers a variety of views on the markets and other related issues to stimulate your thinking processes. What is critically important is to have a logical and disciplined game plan for dealing with your investments. "Hoping to get back to even" has never been a successful investment strategy. 

THE LIST

1) Is 1700 For The SPX Still On Target by Avi Gilbert via MarketWatch

“I also want to address the 2011 correction, to which I see many referring as the "copy" of what we are forming right now. First, the 2011 correction wave was a 2nd wave, and this is a 4th wave. The theory of alternation suggests that they should take different forms, so I am not going to expect that we will be working from the same playbook as 2011.

Second, it seems as though many market participants have been referring to this market fractal as to what will happen in our current market scenario. Well, when a large segment of the market maintains the same perspective, it is quite rare to see that perspective play out. So, for that reason, I think that the market is either going to break down sooner than I expect, which is not called for in the 2011 fractal, or, more in line with my primary perspective, we go back over the high made on the day of the Fed announcement before we drop to lower lows, which is also not in line with the 2011 fractal.”

Read Also: Ending The Markets' Short-Term Obsession by Mohammed El-Erian via Bloomberg View

2) Investors Haven't Been This Bearish In 15 Years by Mark Hulbert via MarketWatch

“Bearishness has reached an extreme not seen at least since the top of the Internet bubble in early 2000.

Yet this is a bullish omen, according to the inverse logic of contrarian analysis: Extreme levels of bearishness indicate that there is a very robust "wall of worry" for the market to climb.”

Read Also: 5 Things To Do BEFORE Your Portfolio Crumbles by Peter Hodson via Financial Post

But Also Read: What Could Stop This Bear Market by Anthony Mirhaydari via The Fiscal Times

3) This Is When Bonds Go Boom! by Wolf Richter via Naked Capitalism

“This chart from LCD HY Weekly shows the distress ratio of leveraged loans as measured by S&P Capital IQ LCD (blue line) and of junk bonds as measured by BofA Merrill Lynch (red line) which depicts reality in an even harsher light than Standard and Poor's. Leveraged loans are generally secured and hold up better in a bankruptcy than bonds. But distress levels of both have recently begun to spike.

These yields that are rising to distressed levels drive up the spread between corporate bond yields and US Treasury yields. The spread is a measure of perceived risk. It had dropped to ludicrously low levels. This wasn't a function of risk somehow disappearing from Planet Earth. It was a function of the Fed's beating investors into submission with its zero-interest-rate policy so that they would eliminate risk as a factor being priced into their calculus. Now risk is re-inserting itself into the calculus.”

Read Also: Are Credit Markets Signaling More Pain? by Fil Zucchi via See It Market

4) Carl Ichan: Market Is Way Overpriced by Carl Icahn via Zero Hedge

"God knows where this is going. It's very dangerous and could be disastrous," said Icahn, who has been a consistent critic of the Fed for keeping its benchmark interest rate close to zero since late 2008.

Icahn said he felt compelled to raise red flags about the state of the financial markets because he believes if more big investors had warned about subprime mortgage market in 2007, the United States might have avoided the crisis that strangled the economy the following year.

In a video entitled "Danger Ahead" and released on Tuesday, Icahn said the Fed's rate policy had enabled U.S. chief executives - many of whom he describes as "nice but mediocre guys" – to pursue "financial engineering" that he said has exacerbated an already wide gap between rich and poor in America."

Read Also: Today's Market Looks A Lot Like 2000 and 2007 by Alex Rosenberg via CNBC

5) New Sign Of A Market Bubble? by Michael Hiltzik via LA Times

"At a press briefing last week, Mike Wilson, an executive of Morgan Stanley's wealth management arm, cautioned that 'Consumers are feeling pretty good, and they are starting to spend money again, and they're starting to do dumb things. They're starting to borrow money, they're starting to maybe buy that house they shouldn't or that car they shouldn't.'

That's amusing, because Morgan Stanley has been aggressively hawking non-purpose loans: its total securities-based loans totaled $38 billion at the end of 2014, a 70% increase over two years earlier according to an analysis by Paul Meyer of the Securities Litigation and Consulting Group.

The firm's pitch to clients is entitled 'Invest in Your Dreams.' Among those dreams it puts in its clients' heads: 'The restaurant you've always wanted to open. That advanced degree you finally have time for. The perfect house that won't be on the market long. A 1963 Ferrari GTO, just because.'"

(Note: Morgan Stanley is pitching "margin loans" at a time when margin debt is still near record highs. We saw similar behavior at the peak of the last two bull markets.)

Read Also: Goldman Sachs Cuts Outlook For Market by Sam Ro via Business Insider

Other Reading

• The Buffet Valuation Indicator Levitates by Doug Short via Advisor Perspectives
• Valuations Tend To Mean-Invert by John Hussman via Hussman Funds
• Thoughts On Negative Rates via Philosophical Economics
• Selling Is The Easy Part by Ben Carlson via Wealth Of Common Sense
• Say Goodbye To The 4% Rule For Retirement by Roger Nusbaum via Advisor Perspectives
• Slumping Manufacturing Doesn't Matter?by Jeffrey Snider via Alhambra Partners
• S&P Predicts ECB Will Boost QE By 120% by Tyler Durden via Zerohedge

“Risk taking is necessary for large success, it is also necessary for failure.” – Nasim Taleb

Have a great weekend.