Clearly, we didn’t see the stock market trigger circuit breakers this week. Instead, we’ve seen one of the most incredible rips higher for the stock market in recent memory. Seasonality seemingly all took place in a concentrated way in just five trading days.
Good thing my expression of risk-off in my strategies is long-duration Treasurys. This week is a good reminder of why shorting and buying puts doesn’t work. Using Treasurys, however, did. That’s the appeal of Treasurys. Treasurys allow you to be wrong and still make money.
Having said that, apparently me still saying we are in a risk-off environment is controversial.
Is it though? We really are STILL in a risk-off environment.
“WHAT?!? That’s crazy! We are going to the moon bro!”
Just because circuit breakers didn’t trip this week, doesn’t mean conditions have changed from an intermarket perspective.
Utility stocks, which win in risk-off environments, are back to levels from 5 weeks ago.
Small-cap stocks are back to levels not seen since… two weeks ago.
The S&P 500 is back to levels not seen since… two weeks ago.
How is it that long-duration Treasurys have outperformed stocks the last two weeks, while utility stocks continue to outperform, ISN’T risk-off?
I’m not being stubborn here. Every indicator I am watching is still screaming risk-off.
The Bottom Line: We’re Still in a Bear Market
We didn’t see circuit breakers this week – which I argued for because 1) stocks crash from oversold levels, and 2) I view Japan as being in a very high-risk position) – but that doesn’t mean everything is clear here on a go-forward basis. If anything, risk-off dynamics look even more acute, and moves like this, while painful to miss out on, notoriously happen in ongoing bear markets.
I maintain this is a trap and conditions favor an accident. I just may not be so bold as to predict that a circuit breaker will happen in a particular week anymore.
Maybe.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
