Archives for November 2015

Stocks are no Turkey

I hope everyone had a great and meaningful Thanksgiving. As I type this, my stomach has settled down and I am just about ready for an evening snack at halftime of the Packers/Bears game before they honor Brett Favre.

Friday is another seasonally strong day on the heels of Wednesday. Don’t forget that the stock market closes at 1pm est. In my previous post I mentioned that the seasonal stats don’t forecast magnitude, just direction. What a perfect example as the Dow closed up a scant .01%! It looks like the Dow, S&P 500 and NASDAQ 100 are biding their time nicely and consolidating the big gains from a few weeks ago. At the same time, the S&P 400 and Russell 2000 have stepped up in a big way as I thought they would.

Next week should see some more significant action when everyone comes back to work. Until proven otherwise as I keep offering week in and week out, weakness should be bought for further price advance. Yes, I know that the geopolitical news is bad and the pundits say our economy is heading into recession and Europe is a mess and Japan is about to fall off the cliff. Someone must have forgotten to tell the stock market!

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Come on in Bears; the Water is Nice!

Although overnight indications had stocks down .5% two¬† nights ago, by the time the closing bell rang, the major indices recouped all that and then some in yet another sign of resilience. It seems like every call and email I get and most conversations I have are with folks who have a very negative view of the markets. I continue to feel like I am on an island alone in my bullish view. The masses just dismiss the upside as nonsense with global terror and Europe on the verge of recession and Japan probably in recession now. When they finally throw in the towel and accept the bull, then I will become concerned that it’s almost over. I feel for my peers who watched stocks go down and did nothing. Then they watched stocks rally and did not nothing again. They keep waiting for the perfect set up that’s simply not coming.

Remember, price is the final arbiter! The most bullish thing a market can do is go up in the face of bad news. That certainly qualifies today. I know of no one who has pounded the table harder than I have that this bull market may be old and wrinkly, but definitely not dead. More all-time highs are ahead. Dow 20,000 by the end of next summer. Come on in bears, the water is nice!

Today and Friday are very strong seasonally for stocks. All that means is there is a higher likelihood of stocks closing up, even by a penny over the next two days. Oftentimes, the upside is unwound on Monday.

Finally, don’t forget that tax loss selling season is upon us.

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Bulls Come Back to Life

Stocks came into the week on their heels from the recent pullback and the horrific terrorist attacks in Paris. In my previous post, I offered that the odds favored some more weakness with a reversal this week. The market saw a quick bout of weakness to open the week, but quickly reversed into a very strong day for the bulls on Monday. While Tuesday saw some internal soft spots, the bears will have a tough time taking control unless stocks close below Monday’s low.

At this point on the index side, we need to pay close attention to the leader. Bulls like me do not want to see the Dow taking charge over the other major indices. I remain of the opinion that all-time highs are not too far away.

On the sector front, I am loving the action in consumer discretionary, transports, internets and industrials. I can’t tell you how many times I hear financial reporters or pundits say that industrials can’t rally with a strong dollar. Clearly, these people never do their homework because it’s happened many times before and right now as well!

High yield bonds remain a concern, but perhaps Monday’s reversal will give them some upward energy. I am not ruling out that this canary in the coal mine already peaked for this bull market and will assume a laggard role until the next bear market hits.

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Pullback Deeper Than Expected

Stocks continue under pressure as they pullback from the huge run last month. Last week, I offered that this week would be the buying opportunity, but the pullback has been deeper than I expected. “Relentless” would be an exaggeration, but there has certainly been some strong selling. While Friday’s action did show the major indices mostly down 1%+, the selling was less severe than Thursday.

Going in to next week, volatility should continue to be on the high side and I do not believe the bottom is in just yet. The market has the look and feel of wanting one or two more down days next week, but the odds do favor a reversal and rally by the end of next week.

Sector selling was downright ugly, but it was not across the board. In fact, materials, industrials, energy and biotech bucked the strong downdraft to close the week. The first three of those sectors, according to the pundits, should be hit even harder with a strong dollar, but that was not the case. It usually pays to confirm what you hear as absolute from the talking heads.

High yield bonds continued their decline and it looks like they are headed back to their 2015 lows in short order. This sector has been very frustrating to trade for the past 18 months and I would almost say that it’s been more difficult now than at any time over the past 20 years. For full disclosure, I run two high yield bond strategies that have been challenging so I may be a little close to the trees.

Have a great weekend! I am so looking forward to being local with my family!!

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Pullback Orderly and Constructive So Far

The pullback that began last Wednesday in the major stock market indices continues. It’s been orderly and constructive so far and if the super bullish case remains, it should wrap up sooner than later. The stock market is digesting the better than expected employment report and is coming to terms with a December rate hike by the Fed.

The banks and discretionary continue to lead which is a positive sign over the intermediate-term. Transports are transitioning to leadership and that’s also a good sign. Energy is trying to step up as I type this and that group offers a nice risk/reward.

I have gone from very positive to very concerned about high yield bonds. With the strong stock backdrop, they should be acting a whole lot better.

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Pullback to Buy

Stocks are finally seeing some pause in the relentless rally that began a little over a month ago. It should be mild, relatively painless and in the 1-3% range. As I continue to mention, any and all weakness is a buying opportunity until proven otherwise. And there’s a chance that the “proven otherwise” won’t be seen until well into 2016.

Internally, the stock market has been and is on solid footing. As you can see from the chart below, the NYSE Advance/Decline line continues to rally from early October. That shows more and more stocks are participating in the advance. The key thing will be if this indicator moves up to an all-time high, which would further insulate stocks from significant weakness and forestall any bear market.

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Right now, banks are holding up really well, anticipating a December rate hike by the Fed. Should the banks maintain their leadership, that would positive ramifications into 2016. Finally, high yield bonds are hanging in with energy pulling back. If this continues, it would be yet another plus in a long line of positives.

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Stepping on the Bears’ Throats

As bullish as I have been, and I don’t think many have been as positive as I have been, the stock market is now starting to surprise even me on the upside. Coming in to the week, stocks were looking a little tired and in need of some rest, either by going sideways for a few weeks or by seeing a mild pullback of 1-3%. Instead, stocks are continuing to move higher although the rate of acceleration has slowed. I keep hearing the bears disavow and dismiss the rally, but their rationale has become even more absurd. I am even starting to see bearish analysts make personal attacks. I guess the pain is starting to hurt from having their throats’ stepped on.

It’s very interesting to note that sector leadership is very different so far this week than it’s been. Energy has been the big winner, finally stepping up to lead. Beaten down biotechs have also seen some love. This is important because it shows very strong underlying demand for stocks as certain sectors rest while others take their place. High yield bonds also continue to behave well and I am sticking with my forecast that this could be a run right into 2016.

In short, nothing has changed from four weeks ago in that any and all weakness should be bought. It’s just that after a 2000 point rally in the Dow, risk is higher than it was.

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