The Week Ahead: Why Bubble Fears Are Bullish For Stocks

April 10, 2016 | April 2016 Bond Updates

The stock market had it sharpest selloff last Thursday since February 23rd as the stronger Japanese Yen and sharply lower Treasury yields spooked investors. The dollar dropped 1.4% versus the Yen as it has reached its highest level since October 2014. The dollar decline has caught many by surprise though there were clear technical signals by February 6th that the dollar had topped out. Many who sold the Yen short have been squeezed though there is still a high short position. Despite the rebound Friday the major averages are still locked in their trading recent ranges. Many are wondering whether we are going to see a normal market correction after the recent 12% rally or will sector rotation will take its place. Some of the strongest sectors like the Dow Transports have already corrected 5.7% from the March 21st high but there needs to be more evidence before I can conclude it has completed its correction. Positive signals a week ago put the health care, biotech and energy ETFs on the Viper ETF buy list last Monday and they all had a good week. Much of the pessimism is tied to their expectations that we will have another weak earnings season. In last week's column "Should Investors Worry About Earnings Season?" I presented my view that the earnings season could be better than expected despite the widespread gloomy forecasts. I also pointed out that it was also not a reason for investors to avoid stocks. In this environment the comments by Donald Trump last week that “I think we’re sitting on an economic bubble, a financial bubble" has likely made investors even more fearful. In my view this was goal of his comments. Unfortunately fear does sell which is demonstrated by the continued success of his presidential campaign.

View more at: http://www.forbes.com/sites/tomaspray/2016/04/09/the-week-ahead-why-bubble-fears-are-bullish-for-stocks/