$SPY, $STUDY the
overall theme for the remained unchanged as the stock market closed out this
slow moving week. There wasn’t much momentum but bulls had the upper hand, as
the timeline of the Fed rate hike got pushed out to late in the year. The Alpha One model again had a profitable
week both on equity appreciation as well as cash profits on the daily Option
trading activity. The Alpha Two model
was up nicely as well both on portfolio appreciation plus first quarter
dividend payments.
Stocks have done an
impressive melt-up in the past three sessions. All three major indexes are all
within one day’s work from their record highs. But a more impressive move was a
14% drop by VIX (12.58) to the lowest level of the year. This suggested that complacency
was on the rise. Many investors might have been hoping that estimates had been
cut low enough so that stocks would do just fine regardless which ways earnings
turn out. Will that be the case? It is hard to tell. For one thing, VIX has not
been able to stay under 13 for a long time so far this year. Friday close saw
the Alpha Market Model Short Term split 50 -50.
The SPY changed to a Buy at weeks end.
The Asset Allocation recommendation remains at 62.5% Long and 37.5%
Cash.
The overall technical condition
for stocks is weakening slightly going into the beginning of earnings season
which is not too surprising. The first
quarter earnings surprises came in at about 58% of companies reporting which is
a little higher than the ’14 quarterly average of 55%. That being said according to our friends at
FactSet even though the number of surprises is in line with historic trends the magnitude of absolute
gains may be down, which will be less than encouraging for the market.
A quick review of the past
five years shows that in each year the first quarter came in with a modest gain
while three of the five second quarter results were down slights. Although bulls have the momentum and the long
term trend is up, it wouldn’t be surprising to see a short term pullback or
correction during the earnings season.
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