Range Bound

"Home, home on the range.  Where the deer and the antelope play.  Where seldom is heard a discouraging word and the skies are not cloudy all day." - A Scout Song

After the recent market draw down it appears that the market is now range bound and waiting for more stimulus from a central banker to break out higher or more poor economic data points to dive lower.  In the chart below I have drawn in blue lines showing the range.  As you can see from the chart there is real resistance against moving a lot higher and I would expect any upward move to be short lived and a selling opportunity.

The recent rally was created by the ECB when Mario Draghi hinted that further stimulus was on its way in the form of negative interest rates and more cash infusions.  This is all in an attempt to stave off deflation in Europe.  With the added stimulus the dollar continued on its path of strength and the 10-year yield fell to one of its lowest on record and is now around 1.7%.  While low this is still a big number compared to the rest of the developed world so I could see rates going lower from here.

In contrast to Europe in the United States the CPI (inflation) numbers for January were recently released and they are showing upward pricing pressure.  Total CPI was up 1.4% while core CPI was up 2.2% year over year.  This is far higher than the numbers expected particularly when you factor in a continued slide in the price of oil.  The two largest contributors were apparel and medical services but I have to say that outside of these two components I have been witnessing bumps in prices across the board from Starbucks to Rubios.  It will be interesting to see whether this upward trend is signalling an economic expansion or desperation of companies to maintain profits in the face of a weakening economy but what it will do is keep the Federal Reserve from lowering interest rates in the near term.

This means to me that the market will mark time and bounce around within its range until a clearer indication of the state of the global economy comes to light.  One thing that is not helping all of this confusion is that there is no clear indication of who will take over the White House.  I have to say that once again it looks like the candidates are less than optimal to deal with the economic crisis that they will face at home and abroad and this lack of leadership will not help the markets.  So for now sit tight and let everyone else fight over these meaningless gyrations in the market.