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Daily Market Update – May 29, 2014 (8:30 AM)

Hard to believe that the morning isn’t faced with the challenge of having to add to another previous day’s closing high.

With volatility so low and now even precious metals testing some resistance levels the thought that comes to mind is the inescapable reality that cycles rule everything in economics. It’s just the onset, length and magnitude of those cycles that are hard to divine.

With some occasional brief and shallow interruptions this has been a 5 year cycle that appears to have a slowing acceleration as it continues to move higher.

At the same time all of the fears surrounding the impact of the 10 Year Treasury rates on equities have been unfounded as even the direction of rates has been missed. First the fears focused on the rate approaching 3%, barely a couple of months ago and now the fears have followed the rate from 2.75% to 2.5% and still, nothing. The market just goes higher despite the well reasoned theories on why it should not do so.

For the rest of the week there is plenty of economic news scheduled to be released but none of it likely to move the needle very much as we’re on target to have a second consecutive week of gains.

The big difference between setting record after record today versus 5 years ago or in the 1980s is that there isn’t the same kind of complacency. Back then there was often a belief that regardless of the investment it was bound to go higher, if only because it would be carried along with the rest of the market.

By and large that was true for certain times over the past 25 years and the complacency was justified until it wasn’t.

Sometimes the loss of justification came suddenly and caught most everyone by surprise, while at other times that lack of justification came with fair warning that was frequently ignored.

This time around the complacency isn’t there because the market has been very selective. Even while it moves higher and higher not all are taken for the ride and there appears to be much more sector rotation than ever, perhaps accounting for a divergence between the new market highs and the number of stocks in the new daily highs list.

Common sense would tell you that if the market, which is nothing more than the sum of its component parts keeps going higher its component parts must, as well. The fact that the number of stocks on new highs list is decreasing is telling of  the fleeting strength of individual positions, which may in part explain why the vast majority of hedge funds are trailing the market index.

I suppose that those may be concerns for next week.

For this week there aren’t too many positions set to expire, but I’m hoping that there is again a nice mix of assignments and rollovers, much as was the case last week.

The early market indication is for a flat open and even if that is sustained through tomorrow’s close that would be just fine and create the right frame of mind to deal with all of those future concerns.