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Each week our investment policy committee meets to discuss different market scenarios and what we are seeing and hearing.
Yesterday was Janet Yellin testimony day. Out of one side of her mouth she was talking up the bubble and out of the other side she tried to talk it down. When Greenspan talked about irrational exuberance he got an extended selloff, Yellin only got a day.
What was also interesting is that she mentioned certain sectors that she saw as overvalued. Then this morning the Treasury Secretary threw her under the bus when he said that the Government shouldn’t talk about sectors. Things like that always make for interesting theater.
Yellin also might have surprised some people with her commitment to low interest rates for longer than some people had thought. Once again it may be too soon to say the bull market in bonds is over.
We have been talking about a market selloff into mid month followed by a rally. It now looks like the market could be on the rally side of the equation. Right now the S&P 500 is around some strong resistance. If we can get through 1978 then our next resistance level is 2030.
We have also been talking for a while about the possibility, however remote, that the Dollar gets squeezed out as the reserve currency. An interesting development this week was the announcement that the BRIC countries are forming an alternative to the World Bank in 2016. Way too early to tell what impact this will have on anything but it bears watching.
On the negative side it is once again troubling that Small Caps and Mid Caps are lagging Large Caps in this latest up move. It is also somewhat troubling to see some of these small credit events pop up recently—-Portugal and China. Could end up being much ado about nothing but before a large credit event you get the tremors from the small credit events so this also bears watching.