Market Briefing For Monday, June 6

Procrastination by sellers, combined with continued foreign-fund flows, once more allowed a market to recovery almost entirely from a moderately sharp loss in the wake of the worse-than-mediocre jobs numbers early Friday. This was as we expected; against a backdrop of recognizing growing backdrop danger.

Financials didn't participate; and there is plenty of ammunition for the downside. Correlating this market to Oil gives a better clue, as while everyone thinks that the Fed is on hold, we're not embracing that view, because we have seen all the Fed comments about 'strong recovery' and dismissed them as 'cover' for what is a policy shift heralded since Stan Fischer was brought in as Vice Chair. 

Hence we already saw most economic data (updated charts similarly weeks ago reflected similar lethargy across so many sectors) either contracting or barely in positive territory; and recently remarked about Autos, Housing, Financials, and others (including this time 'technology' broadly-define) as have lost luster if not a bit more. That's why Friday morning we 'counted on' Oils and Apple (AAPL) to rebound as that was the best shot of a comeback, and it did work out appropriately.

Valuations may be in nosebleed territory; but I don't see how analysts can really wrap themselves around an optimistic significant market advance uninterrupted by anything. First of all I'm unconvinced that the Fed paints itself out of a corner; and I suspect they already knew roughly what Friday's numbers would be in terms of being mediocre at best (they would be negative if not for adjusting).

Further we have BREXIT to contend with; and sure, if we get through even that, it's difficult to fathom how the market gets any sort of sustainable move. Yes the Fed 'could' be chasing inflation and boosted earnings; but that's not what this is; it's what the bullish crowd wishes it was.

In sum: We're unimpressed by the market; though expected a comeback from the initial sell-off. The prospects for a mid-month pullback (or swoon) persist at the same time we do suspect one more attempt at a higher rebound first.

Here in the US, bond markets have been a sight to behold, levitated by NIRP or QE in Japan and parts of the Eurozone. Little discussed, but important: now we have ECB on-tap to buy corporate bonds, including euro-denominated issues of US companies. As this pushes lots of euro bonds into negative-yield absurdity, it open credit doors in the US, accounting for some of the money flowing in.

Just do keep in mind that technicals are overbought (though fluid and can work in mixed fashion for a few more weeks). And as I suspect much high-level buys, or levitation, is due to the credit market impact, trying to pinpoint what's next on a conventional technical basis (whether Wyckoff, Elliott or any other) won't result in a clear answer. There is no great momentum here; there is no 'signal' that all the trading systems can generate to confirm or deny.

Conclusion:

What there is might simply be a market hanging fire, so to speak, or perhaps 100-200 handles (yes, that's not overstating it) above where valuations, even viewed optimistically, may say it ought to be. That gives an idea of 'where' we think downside vulnerability could lead, at least for initial breaks; while even a prospective 'June swoon' doesn't have to be so dramatic in its up-and-down likely initial manifestation. Why? Because it's a 'process'. Meanwhile the 'reality disconnect' applied to the overall U.S. economy and most household financials continues to plod along.