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The U.S. Stock Market Is In A Correction Mode

 May 06, 2012 03:15 PM


Author: Gary Harloff

Covestor model: Opportunistic ETF

Even though the U.S. economy "seems" to be slowly improving, the markets look beyond last week's numbers. The absolute price momentum of equity funds is declining. The market is in correction mode.

Another indication of this is that bear market funds and defensive stocks have positive momentum, e.g. government bonds, bear funds, real estate. If this correction deepens into a bear market, then the U.S. business cycle, which lags the market by 6 months, could be in recession during election time.

[Related -Bulls Rule As Volatility Recedes And Investors Position For Holiday Cheer]

Watch for administration "managed" economic factors/indicators like jobs, unemployment, manufacturing, CPI,and gas pump prices. The big U.S. federal government, due to its large size and overhead function, is strangling those who actually make money.

Also as money shifts to environmental and alternate power concerns, even NASA has stopped spending money going into low earth orbit. Cape Kennedy lost 10,000 jobs. Does the administration "tell them to eat grass"?

[Related -Semiconductors Get Slammed As Investors Scramble To Protect Profits]

Wall street bank/prop trading CEO's pay of 30 to 50 times the average wage is quite interesting. Is $50 million per year enough to retain a CEO? It makes one think of coveting. The naive ask why the Volker rule is delayed.

The utility sector is the only one of the asset classes and indices with positive absolute price momentum. This is consistent with the market in correction. It appears that the market is waiting for another quantitative easing program by the Fed.

We have new sells on S&P500, Nasdaq 100, and a new buy on bonds. We continue our sell on the Philadelphia Stock Exchange Gold and Silver (XAU). Because the markets can turn quickly, be ready. May the market be with you.

Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures. For information about Covestor and its services, go to http://covestor.com or contact Covestor Client Services at (866) 825-3005, x703.

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