Archives for March 2018

Nasty, Ugly Reversal

Stock market action on Tuesday printed a classic nasty and ugly reversal when looking at the charts. Stocks opened at the highs for the day and closed at their lows. Additionally, the move from high to low completely enveloped the previous day’s activity. While this does look really bad on a chart and people will often say it’s a classic key reversal which ends rallies and bull markets, research doesn’t support that claim. Sure, you can see and have seen this behavior at some market peaks. However, it has been seen so many other times that it’s track record is very poor. As with many claims, it worth paying attention to, but not always actionable.

Let’s start with the S&P 500 below. You can see what I am talking about just below the arrow. Additionally, the same thing occurred at the little peak in late February.

The Russell 2000 small caps are next and you can see four “key” reversals on the chart with the one at the highest peak leading to the correction. The others led to nothing.

Finally, the NASDAQ 100 is below.

Taken in a vacuum, “key” reversals have more bark than bite. However, when combined with other indicators and research, they may be able to support a thesis. In today’s case, I think we could see some mild weakness which ends up totaling 1-3%, but that should be another buying opportunity for a run to new highs. The NASDAQ 100 is already there and the Russell 2000 was a whisker away.

Tomorrow, I will review sector leadership along with junk bonds and the NYSE A/D line.

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2018 Looking A Lot Like 1997

As you know, I have been hanging my hat on two scenarios for the market since early February. I updated those yesterday. While both scenarios still lead to Dow 27,000 by the end of Q2, I searched long and hard for further evidence to support my thesis. I love finding market analogs, but there haven’t been many to what transpired over the past 6 weeks.

1997 seems like the most favorable comparison and when I lined them up, it looked fairly strong. Below you can see 1997 followed by current stock market action. I added labels for emphasis. While the rally in 1997 wasn’t as powerful as we saw recently, it was still a solid rally, mini crash, reversal and mild retest. That mild retest fooled a lot of people into thinking that more weakness was coming toward Dow 23,500. On balance, stocks should continue higher although a brief 1-2% pullback should be expected this month.

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I’m Back! Dow Still Going to 27,000

I want to start off by thanking everyone for the overwhelming support, compassion and number of condolences on my dad’s passing. It has been a difficult few weeks both pre and post funeral and Shiva,¬† but my family and I were tremendously comforted by so many people coming out of the woodwork with calls, cards, texts, emails, donations to his favorite charities and an amazing amount of stories about my dad, many of which I was hearing for the first time.

While my writing had gone dark for the past 10 days we have been very active with our portfolios. When I left off on March 1 we had dramatically reduced our exposure to stocks just as the market was beginning it’s last little 1000 point plunge. I mentioned that we were keenly watching events unfold for an opportunity to redeploy that cash. Little did I know that the moment would come less than a day later as stocks were hammering out a bottom just above Dow 24,200. So far, both moves seem to have been very fortuitous.

Let’s return to what has become my favorite two charts and scenarios. The first was the preferred path until I relegated it to number two a few weeks ago. Stocks were closely following my arrows for a while.

The chart above became my number one scenario and except for the latest bout of weakness going a bit deeper than thought, this one seems to be on target for now. Remember, regardless of which scenario wins out or if a new one becomes possible, I have said all along that all paths lead to fresh all-time highs for stocks by the end of Q2. I have written it here as well as pounded the table about it on Fox Business and CNBC. No wavering here. The bull  market remains alive.

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Earlier this week, my dad, Richard “Dick” Schatz, passed away. He had been sick for a while, but just kept beating the odds with some amazing clinical trials at Memorial Sloan Kettering. If you called the office over the years, every once in a while he would answer our phone and engage in conversation with literally anyone who could fog a mirror.

Below is the most recent picture of my parents at a milestone birthday party for one of his best friends before Dick got sick. My dad loved a party and never wanted to miss a chance to have a good time, even with his two left feet, size 14 and complete lack of rhythm and tone.

Information about the arrangements can be obtained by calling the office.

While I have canceled all meetings for the next week (thank you for understanding), I am doing my best to respond to emails and return phone calls in a timely manner. Your portfolio is being run in the exact same fashion as it has been over the last week, month, quarter and year. We dramatically lightened up on equities about 1000+ points ago and are keenly watching for the opportunity to redeploy over the coming days and weeks. The bull market remains alive, whether stocks attempt to find a bottom above 24,000 or even below 23,000.

As always, thank you for your support, loyalty and understanding.