Archives for September 2016

Pullback Remains But Transports…

The Dow and S&P 500 are still lagging the other major stock market indices in pullback mode, but contrary to what you may think, this remains a very healthy environment for stocks. In the strongest markets, the more “risk on” indices are the ones charging ahead. That’s the case now with the S&P 400, Russell 2000 and NASDAQ 100. The NYSE Advance/Decline Line which measures broad participation recently scored yet another all-time high and high yield bonds are hanging in well.

That’s not the landscape ever seen when a bull market ends or even a correction.

Stocks remain in pullback mode and I expect to hear some noise from the bears today and early next week. We should be on the lookout for talk from the “floor traders” that stocks are breaking down at key levels and that could mean the end of the post-BREXIT rally. That’s the same chatter we have heard since mid-July and I don’t give it much credibility. We haven’t even seen a 2% decline since BREXIT which I continue to say that it shows tremendous underlying strength. This little bout of weakness may become 2%, 3% or even a little more. And if so, I remain firm that it will be yet another good buying opportunity on the way to Dow 19,000, 20,000 and perhaps much higher.

On the sector side, think of how many pundits left the transports for dead earlier this year. They said the collapse called for an impending recession with a nasty bear market. Talk was renewed post-BREXIT; yet now, that group is leading the market and is close to breaking out. While all-time highs are almost 20% away and unlikely to be seen anytime soon, the transports recent surge is definitely a positive development for stocks.

Finally, the perma dollar bears seem to be waking up again as the end of the month approaches with calls of collapse, calamity and doom. More on this next week.

Have a great weekend!

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Still in a Pullback

Over the past few trading days, stocks gathered a little steam, but I still think the markets are in the midst of yet another pause or tiny pullback. It is amazing, however, that we have not seen a 1% in either direction since the post-BREXIT rally in early July. I have been saying nonstop that we saw historic strength coming out of the Y2K like BREXIT and that strength would not dissipate so quickly. Frankly, I thought we would have seen at least a 2-3% pullback by now and I have been the most ardent of bulls. The underlying power has been more than impressive.

On Tuesday, the NASDAQ scored a fresh all-time high. (Is that redundant?) Coupled with the S&P 400 at new highs, you may be questioning how that’s still a pullback. The other major indices are lagging a bit and there has been much power behind the recent little rally. Don’t get me wrong. I am very happy that the bears remain at bay. The longer stocks can stay up here, the more likely we will see an upside resolution.

Leadership remains strong and diverse with semis, software, internet, financials, industrials, materials and energy on top. As discretionary rests, the transports are really stepping up here. Defensive groups have moved to the back seat and high yield bonds continue to resist selling. It’s hard to argue with what’s going on although the vast majority of pundits continue to disavow and hate this bull market. That makes me comfortable over the intermediate-term as Dow 20,000 remains attainable later this year or early next. I don’t how these people who are paid to be in stocks and make money can be so wrong for so long. Remember, it’s okay to be wrong. It’s not okay to stay wrong.

The clown parade just continues to grow. Soros, Druckenmiller, Icahn, Zell, Trump, Fink, Gundlach, Gross, Faber, Auth, Faber, Yusko, Singer.

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What a Pullback Looks Like

Stocks have gone essentially nowhere for a month. Bulls, like myself, view this as a healthy period of digestion or consolidation before the next leg of the rally begins. Bears argue that stocks have peaked and they are headed much lower. As I have mentioned for months and months, I don’t think the bull is over or close to that point. There have been too many strong indications of more upside that typically do not occur as a bear market is about to begin.

Pullbacks come in various forms but are usually limited to either moving sideways for a period of time or seeing a shorter and sharper bout of weakness. The current pullback looks like a combination. The major stock market indices have been long overdue for at least a 2-3% pullback and this looks like it’s it. However, I wouldn’t be so aggressive to play this to the downside as it should be one that ends quickly and without much notice.

Leadership remains strong and healthy. The NYSE Advance/Decline Line as well as high yield bonds just saw new highs. More all-time highs for the major indices is ahead. Stocks may be a bit tired here and with the monthly employment report being released tomorrow, there are enough good excuses for the stock market to continue to pause. This is a good time to prune portfolios into the new leaders and prepare for the next leg higher.

Finally, as I have discussed before, the real elections that matter for the markets are next year in France and Germany. Our own election should not have a significant impact on our markets. Current odds favor Clinton 70-30 over Trump.

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