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Market Analysis: There Is No Such Thing As a Perfect Rally


If you look for perfection, you'll never be content.
-Leo Tolstoy

Markets are mostly in a happy mood following Friday's NFP-driven rally.

I have serious doubts as to whether the Fed's going to raise this year, but traders are now pricing in a 47% chance of a December rate hike, up from 9% post-Brexit. I peg the odds as more like 20-25%, though admittedly, that's based on a feeling more than anything.

The yen is down on news that Japan's Emperor Akihito publicly hinted that he will be stepping aside.

German industrial production beat expectations in June (pre-Brexit data), while Visa and Market said UK consumer spending accelerated in July from June, thouhg it was Q1 numbers.

France's central bank said its economy will rise 0.3% in Q3. Economists expected a 0.2% increase.

This data implies that perhaps the UK really kitchen-sinked its growth forecast, creating low expectations it can beat.

As you can see in these charts of the Citi UK and EU economic surprise indexes, European economic data remains pretty solid relative to Wall Street forecasts:




The hot bio/pharma complex may get a lift today on solid numbers from Allergan (AGN) and Horizon Pharma (HZNP).

Crude oil is still on the upswing with a move over $42 this morning. OPEC's president predicted the current dip in oil will be short-lived, and that OPEC members are in “constant deliberations” on stabilizing the market. The group will hold talks in Algiers in September.

Gold is selling off as the aforementioned rate hike expectations get ratcheted up. However, bonds are pretty flat — there's no big rush to sell.

On the deal front, TIAA said it is acquiring Everbank (EVER) for $19.50/ share in cash. Everbank has been rumored to be in play for a while and just surged big-time, which explains the small premium over Friday's $18.64 close.

Sentiment is still leaning bullish, as based on the shape of the VIX curve, ISE Sentiment Index, and the Investors Intelligence Survey.

The AAII survey shows that individual investors are bearish, but overall, the bulls are still quite giddy.

This is why it's important to respect price above all else.

A lot of folks were declaring the market as overheated at 2100, then 2150.

And today, with futures up a few points, the S&P looks like it will open at all-time highs around 2190.

As far as game planning goes, I wouldn't think too hard.

Watch small caps, biotech, oil, and high-yield. When they're moving in the right direction, it's hard to stop the bull.

I'm really zoning in on oil right now.

Its ascent off the $26 February low was a major factor in the bull's revival this year.

But when it broke down from $51 to $39, the bulls didn't skip a beat.

We could be a situation where the bulls ignore oil when it goes down, and they get encouraged when oil goes back up.

I hear a lot of folks complaining that the Russell 2000 hasn't confirmed the SPX record highs, but remember: there is no such thing as a perfect rally.

In almost every rally in the past few years, there's been one type of problem or another — lousy earnings, lousy economic data, low volume, narrow leadership, etc.

Good enough can be good enough.

Good luck friends.