Weekend Reading: Capacious Cognitions

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