Short-Term Iffy But Long-Term Remains Strong

Following up from Friday’s post, stocks remain overbought and certainly stretched to the upside although the same can certainly be said all month. They are much in need of a break or at least a quick pause to refresh. However, sometimes strong momentum overpowers everything as we have seen from time to time. I closed last week by saying that the bull market is absolutely not over in my opinion. That prevented the usual emails.

Look no further than two of my favorite long-term indicators, the NYSE Advance/Decline Line and high yield bonds. The NYSE A/D Line just scored a fresh all-time high last week. I can’t tell you how many times people have questioned me on its value, yet it’s been one of the strongest advocates for the bull market since 2009. The rally from the pre-election low has been historic and the rising tide has lifted all ships. The bull market ain’t over.

Junk bonds are below and as you know, they are among my favorite canaries in the coal mine. Bull markets typically don’t end with high yield bonds making new highs as they have been and are right now.

I have said this for years and years, and I will say it again. While this is no longer the most hated and disavowed bull market of all-time, buying weakness remains the strategy until proven otherwise. Those waiting for the perfect pullback to buy will either freeze when it comes or it won’t be the pullback to buy.

If you would like to be notified by email when a new post is made here, please sign up HERE

Trump Top Ticking Stock Market?

As I write the next issue of Street$marts, there is a lot of Donald Trump included. Not so much from a political standpoint, but more how he is impacting the stock market and economy. It’s really been amazing that every single meeting I have with clients and prospects, the Trump question is the first one asked.

As you know, when it comes to investing, I have a strong contrarian side to me. As the late Joe Granville once said, “if it’s obvious, it’s obviously wrong”. No one can argue that stocks have been on an historic run. For almost a month, study after study has pointed to a pullback, but one has simply not materialized. That’s called strong momentum or a “creeper” market, one that just keeps creeping higher day after day.

Until today, our models remained green with all systems go. That has changed.

The higher stocks have climbed, the more people have seemed to hop on board, something I have discussed for years on CNBC and Fox Business. I often joked at Dow 12,000, 14,000, 16,000 and 18,000 that we should watch Dow 20,000 for signs of investors finally buying. That turned out not to be such a joke.

Anyway, presidents typically do not comment or answer questions about the stock market. That’s an unwritten rule. However, President Trump seems to be blazing a new trail. Yesterday, he sent the Tweet below.

That Tweet by itself is shocking, but remember, this comes from a man who sold all of his stocks last June and then beat up the stock market during the campaign. Assuming he sold his stocks at roughly Dow 17,700, he is now touting the stock market at Dow 20,600. The contrarian in me says to be a little worried. Couple that with our sentiment model which was coupled with our market model and you  have the ingredients for some weakness.

I absolutely do not believe the bull market is over.

That will stop the usual emails. I am somewhat concerned about the next 4-7% move. It may be time to play some defense and take some very nice profits.

If you would like to be notified by email when a new post is made here, please sign up HERE

Sector Leadership Immunizes Stock Market from Bear Market

On Friday, I wrote about the Russell 2000 and what a potential breakout could mean for the stock market. At the open today, this index hit a fresh all-time high. Before breaking out the balloons and party streamers, let’s see if it can close at new highs and not give back too much over the coming days. With the Dow closing above 20,000 for five straight days I will have a new target very shortly that looks to be several thousand points higher.

Turning to key sector leadership, it’s continues to be strong and constructive. Semis have paused of late, but continue to trade right up against new highs. While extended, the rally should still have legs.

Banks, which have traded in a tight range since early December, are trying to breakout to the upside right now. Only a failure here and break to the downside would cause me to temper my intermediate-term enthusiasm.

Like the banks, transports have also been in a trading range since early December and are trying to breakout higher  now. That is certainly bullish from an economic standpoint.

Finally, consumer discretionary, which I did not think would quickly reassert itself heading into 2017, has done just that. It now stands at all-time highs.

It’s really hard for the bears to argue that a bear market or even 10%+ correction is close at hand. The major stock market indices are back in gear to the upside as well as the four key sectors. Of course, this strength never, ever precludes a routine, normal and healthy 2-5% pullback. In this case, as I have said for many years, weakness is a buying opportunity.

If you would like to be notified by email when a new post is made here, please sign up HERE

Small Caps Getting Ready to Lead While Worries about Trump Persist

Yesterday, I wrote about the major stock market indices and how the Russell 2000 was finally waking up. Below is an old chart which I first offered in early January. You can see that the small caps have been in a tight trading range all year and are now trying to break out to the upside. With so many studies pointing lower, this is one index which could counter some of the negativity and give the market a little push higher if it can close at all-time highs. That’s another 2% higher from here.

During the snow day, I spoke with several clients who were concerned about President Trump’s behavior. Between the tweeting and executive orders, people were worried about the markets. This is one area I have absolutely no worries at all. Talk is cheap. Actions speak louder than words and we do have checks and balances with the courts and Congress.

Trump is doing a masterful job of keeping Paul Ryan and the GOP-led Congress off the front pages and really out of the media spotlight as they craft very pro-growth legislation while removing unnecessary regulatory hurdles. Ryan and his team are flying under the radar unlike how President Obama’s Congress during his first 100 days.

The markets don’t really care what Trump has to say so far because the comments are not perceived as to adversely impact the economy or markets. Beyond the immigration executive order which has garnered all of the attention, the markets are very focused on lower corporate and individual taxes by Q3 of this year. Companies could potentially have trillions more to work with at home which translates into more jobs, higher earnings and a better landscape if it all can be pulled off.

“IF” is the operative word. As I keep saying, markets are somewhat priced for perfection and if Congress gets bogged down on Ryan’s agenda, that could make the markets frustrated and correct more significantly than the 2-5% pullback we should see sooner than later.

If you would like to be notified by email when a new post is made here, please sign up HERE

Bears Still Struggling to Make Progress

Happy snow day to those of you in the northeast!

For several weeks, there have been all kinds of studies which indicate that the risk/reward for stocks is skewed to the downside over the coming weeks and few months. The same can be said of some daily studies. When I say skewed, I mean favors a typical and normal pullback of 2-5%. Yet each time the bulls look tired, they somehow prevent the bears from making any progress. In the past, the bears moaned and groaned that the Fed has been helping the bulls, however, with the second rate hike two months ago, that bogus argument is losing.

As I keep writing, markets are very close to being priced for perfection. They are rallying on the hopes of a pro-growth, legislative tsunami by Paul Ryan, Mitch McConnell et al. If that somehow stalls out in Congress, the markets will not be happy. I still do not believe that strength should be bought, but I remain firm that weakness should not be sold. Use pullbacks to rotate to better positions or use cash.

While all of the major indices except the Russell 2000 got in gear to the upside, the Russell looks like it wants to join the party sooner than later. That could provide a little short-term boost to stocks.

If you would like to be notified by email when a new post is made here, please sign up HERE

BONUS Surprise: Inner Circle Shakeup

Bonus #2 – Inner circle shakeup

Given how Donald Trump’s campaign went and how much turnover there was at the top, that theme continues straight to the 2018 mid-term election. At least 3 cabinet members will be replaced by then and another one or two from the rest of the inner circle. Some will be asked to leave while others will become frustrated with either the president or acrimony in Congress. Steve Bannon, Kellyanne Conway, Sean Spicer, Wilbur Ross, Steve Mnuchin, James Mattis, John Kelly, Reince Priebus are a few to keep an eye on.

If you would like to be notified by email when a new post is made here, please sign up HERE

BONUS Surprise. Janet Yellen Reappointed Fed Chair

#9 – Janet Yellen reappointed Fed Chair

Donald Trump attacked and criticized the Fed and Chair Janet Yellen during the campaign. He blamed her and them for many of our economic woes along with the stock market being on the edge of a cliff about to plummet. Once 20,000 was hit, Trump changed his tune dramatically, exclaiming how great it was to achieve that milestone with more upside ahead.

As Yellen’s term as chair expires at the end of 2018, Donald Trump does an about face and reappoints her for a second four year term. At that time, the Fed successfully raised interest rates to 2.5% without adversely slowing down the economy. At the same time, the stock market’s bull market kept on going with the Dow exceeding 23,000.

If you would like to be notified by email when a new post is made here, please sign up HERE

Donald Trump is a One Term President But…

1Donald Trump is not on the ticket against the Democrats’ candidate in 2020

I find it very hard to believe that Donald Trump will want to run again in 2020. While 74 is by no means old, he will have literally done it all by that time. I think there is a binary path to his party’s nomination in 2020. First, things go so well that Trump opts to leave on top, securing his legacy with the country in great shape. On the flip side, after an amazing honeymoon, his policies get bogged down first in committee and then on the floors of Congress. For the first time in his life, he is unable to make a deal.

At the same time, Angela Merkel already lost the 2017 election in Germany and the euro currency and euro zone are breaking apart in 2018 and 2019. This causes major recessions in Europe and Asia that spillover into the U.S. Along with the bear market in stocks, Trump’s popularity and approval rating plummet so much that he is primaried by several in the GOP. Seeing no path to reelection, Trump withdraws from the race to retake control of his empire.

If you would like to be notified by email when a new post is made here, please sign up HERE

Bulls Win Big on Friday But Still Not Ready

Very nice day for the bulls on Friday as the monthly jobs report was really the Goldilocks scenario. Not too strong and not too weak. The U.S. saw decent growth with some mild revisions lower but almost no wage inflation which caused expectations for a March rate hike by the Fed to decline to roughly 20%.

I would not hang my hat on the Fed staying put in March. There are many data points between now and then and I think with the dollar under pressure, they will push to raise.

Except for the Russell 2000, the major stock market indices are now within one good rally from new highs. I still don’t think this is the rally that propels stocks higher on a new leg, but I also won’t be stubborn if the indicators look better. Right now, I see a little more upside and then back to pause mode. Stocks are really priced for perfection and have borrowed a significant amount from the future.

While semis and banks are leading strongly, discretionary and transports are in constructive ranges for now. I fully expect them to join the party, probably later than sooner. Energy may be the most intriguing sector right here as it pulled back to pre-OPEC levels and negativity has skyrocketed. Staples and utilities are also interesting as they are butting up against overhead supply. Should they get a little kick here, those two groups could run higher for a while.

FYI. Until the Dow closes above 20,000 for five straight days, I won’t have any more upside projections.

If you would like to be notified by email when a new post is made here, please sign up HERE

Trump and Putin Have a Falling Out

2 – Trump and Putin have a falling out

This is probably the least surprising of all on the list. One of my theories is that Trump has been so pro-Putin because Obama and Hillary Clinton were such adversaries of Russia. It was yet another good way to differentiate during the campaign. The U.S. and Russia’s interests are so inversely aligned that it would be almost impossible for the two countries not to have a falling out by 2020. I will venture a guess that the impetus for a disagreement comes from Russia’s dealings with Iran or Syria, or Russia’s military taking aggressive positions along a bordering nation.

If you would like to be notified by email when a new post is made here, please sign up HERE