Corrections vs Crashes – What are We Watching? - C.J. Lawrence
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Corrections vs Crashes – What are We Watching?

What are we watching this morning? Despite being fundamental investors, we need to turn to technicals today to understand if a correction is “normal” or something more ominous. We look to the structure of the sell off, ie is it orderly etc. We need to make sure price discovery is achieved and markets can cope with the extra volume of sell orders. We watch the relationship between Treasuries and Stocks. So far, the markets have coped well with the higher than usual volume and circuit breakers which are set at -7% for the S&P500 were not reached. Looking at levels, just before the open, futures markets tested the 200-day long-term average on the S&P500 and bounced off it. Normally the market will retest these levels before a real near-term bottom can be achieved. See the first chart below. The second chart shows Financials. We often look to the banking sector as an indicator of health in markets and Financials also represent the higher Beta sector along with Semiconductors. The chart of the XLF, an ETF representing the Financials sector, suggests that the current correction is not over yet. Looking at 10-year Treasury yields (see 3rd chart), there was a clear sign of “flight to safety”. Yields dropped from the recent peak at 2.85 to 2.75 today. These are all signs that the markets are functioning how they should during market corrections.

S&P 500 (SP50-SPX)

S&P 500 (SP50-SPX)

Financial Select Sector SPDR Fund (XLF-USA)

Financial Select Sector SPDR Fund (XLF-USA)

U.S. 10-Year Treasury Note

U.S. 10-Year Treasury Note

How is this effecting our CJL portfolios? CJL Equity and balanced accounts are still slightly up for the year, having given up gains achieved in January only. Will keep you posted…

 

Bernhard Koepp - The Trusted Navigator

BK
2/06/18


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