Archives for September 2018

And FINALLY, the Dow Rings the Bell

Well folks, with the Dow Industrials finally scoring fresh all-time highs, we have every major stock market index plus all four key sectors seeing new highs since the bottom of the Q1 correction. My forecast is now complete. I can’t count how many times people told me that a new bear market started or this time I was going to fall flat on my face. Don’t get me wrong. I fall on my face plenty times. I just keep getting up.

As the Dow has raced higher this week, the market’s foundation has continued to weaken. There’s nothing new on that front, only that the split market with so many stocks making new highs and new lows has worsened. It’s not healthy. That doesn’t mean the bull market is over because I don’t think that’s the case. I do think stocks are in for a pullback.

If we do see a pullback, the most telling thing may be how the defensive sectors behave. Right now, utilities, staples and REITs could go either way. High yield bonds have been quietly strong but no stronger than many floating rate or levered loan funds. The rest of the bond market has struggled. While the NYSE A/D Line has been powerful all year, it’s been lagging on a short-term basis all month.

Finally, and most importantly, price has yet to trigger any indication of impending weakness. That’s what I will be looking for over the coming week or so to take action.

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Buy Yom Kippur But Participation is Waning

As the Jewish holiday of Yom Kippur is here, so ends the seasonal trend of selling Rosh Hashanah and buying Yom Kippur. It worked out very well this year, if you did the exact opposite! Rosh Hashanah was the most recent little low and stocks quietly rallied right through to Yom Kippur.

The Dow Industrials and the S&P 500 have reasserted themselves while the Russell 2000 and NASDAQ 100 have lagged, not exactly the healthiest backdrop. In sector land, banks continue to be weak and tiny bit concerning, especially when bond yields have rallied which is usually a tailwind.

High yield bonds have behaved reasonably well but the NYSE A/D Line has finally started to show some signs of deterioration and weakness. This condition can persist and not matter for three months or 23 months. It’s not a timely indicator, but it is very important.

Even though stocks have rallied of late, the internals have not kept pace, let alone lead. The short-term concern I have been writing about remains in place.

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Hindenburg, Titanic, OH MY!

As I did my usual weekend research and overview I am even more convinced that there is valid reason to have some short-term concern. By short-term, I am looking at the next three to five weeks and nothing more than a single digit pullback, worst case. Lots of little things have ans continue to pop up to go along with the negative seasonal headwind this time of year. However, the real and nasty bearishness of September has been muted by the bull market as I wrote here.

While price action in the major indices continues to be strong and price is the final arbiter, there are a number of secondary things that warrant attention. You have heard or read about the “dreaded” Hindenburg Omen or Titanic Syndrome. Those are two stupid names for a market condition that’s not as deadly as the name suggests. In essence, they are triggered when there is a split market, meaning lots of stocks making new highs and new lows along with a few other rules. Analysts look for clusters of these signals to signal weakness in stocks. While their track record is a little above average people love to cherry pick and highlight triggers at the bull market peaks of 2000 and 2007.

Given what I wrote, I still remain very confident that the bull market remains alive and reasonable healthy. More all-time highs should be in order next quarter and into 2019.

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Gold a Bit Perplexing. Stocks Due for Pullback

Let’s start with gold. A few weeks ago, I wrote a longer article in Street$marts about a major low in gold forming. It’s USUALLY not that difficult to spot. However, this time, gold and the gold stocks have been diverging with the metal holding the bottom while the stocks made new lows. See the charts below.

I can tell you that it’s  been a bit perplexing, but not unprecedented. And although I have been long-term bullish on the dollar since Q1 2008, I now find myself in one of those moments where the next month or two doesn’t look so hot for the greenback. If that comes to fruition, gold should rally.

Turning to stocks, I still have the same concern I voiced the other day. Price acts great, but I am not in love with what’s going on beneath the surface. There is no clear cut leader from the major indices. Discretionary and transports are leading powerfully. Semis are neutral at best. Banks are no better. Junk bonds have been quietly very good. The NYSE A/D Line has stalled out.

What would make me feel better?

The Dow joining the other indices and scoring an all-time high. The NYSE A/D Line joining the Dow. Banks stepping up or at least outperforming the S&P 500.

I am not overly negative or worried about a big decline, but I also don’t think stocks are rocketing higher from here. A pullback sooner than later seems in order.

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Becoming a Little Concerned

Sell Rosh Hashanah, buy Yom Kippur. The age old stock market adage for this time of year. I can tell you that no one was discussing that at synagogue over the past two days. As you can imagine, it was AAT, all about Trump, the good, the bad, the ugly and the otherwise. Normally, as you know, I would insert myself right into the conversation. However, given the holiday and toxic nature of politics right now, why bother. Everyone has their opinion and no debate is likely to change that.

Stocks saw reversals on Monday and again on Tuesday, first to the downside and then to the upside. Net, net, we saw a small rally. Leadership is faltering. Semis and banks are breaking down. Dow Jones Transports scored an all-time high while the Dow Industrials did not. The horribly named Hindenburg Omen and Titanic Syndrome have been flashing repeatedly this month, signaling a narrowing of participation.

I am becoming a little more than mildly concerned.

And gold is certainly frustrating bulls and bears.

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Role Reversal

The NASDAQ 100 and by default, the technology sector has led the markets all year. That’s certainly no secret. Value stocks have lagged not only this year, but every year since the bull market began. In fact, they are about as cheap relative to growth as they have ever been. This week, there has been somewhat of a reversal of fortunes as the tech-laden NASDAQ 100 has come under strong selling pressure while value stocks have held their own.

Does that sound familiar?

That’ s what started to happen as the Dotcom Bubble began to burst in March 2000. No, I am not predicting anything like 2000-2002, just making an observation. The market’s foundation remains very solid today while it was crumbling in early 2000.

Although semis are selling off with tech, the other three key sectors remain in leadership. Junk bonds are fine and the NYSE A/D Line recently scored yet another all-time high. Definitely not the behavior typically seen at the end of a bull market.

It’s interesting that as the bears beat their chests on every bit of geopolitical news that comes out, especially when concerning Donald Trump, stocks don’t even miss a beat. As I have said since Trump was elected, the market simply does not care about his tweets, attacks, behavior or anything else that’s not related to the economy. It’s reality over rhetoric or policy over personality. That has to be so tough for the bears to accept when all they have done is rationalize why stocks should be going down for the past 9 years.

Finally, while the gold stocks have made new lows this week, the metal has not, creating an interesting divergence…

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The Misunderstood Bearishness of September. The Real Facts

I cannot believe that September is here. That was the fastest August ever! With the turn of the calendar, the stock market now enters what has historically been the worst month if you look back 100 years. Of course, none of us have been investing that long and as we all know, markets can and do morph. In other words, over time, markets are at least efficient enough to arbitrage away most known calendar effects. Sometimes, the trend starts early, but sometimes the trend becomes impotent.

Last month at this time, I wrote about how August had morphed into a flat month historically, regardless of whether the stock market began the month in a bull or bear market. That trend did not work out so well in 2018 as August turned out to be a very nice month for the bulls.

So here we are in September. Since 1928, the month has returned -1.1% on average with down months beating up months by 10. Since 1950, it’s only lost .53% on average. And since the bull market began in 2009, on average, September has closed up by more than 1%!

Returns are in the eye of the beholder or certainly depending on what time horizon you use.

Let’s look at what happens during bull and bear markets. September closes up almost .50% when beginning the month in a bull market versus down 2.7% when in a bear market. This statistic certainly seems more important than how September has fared overall as it suggests that when in a bear market, September is really poor which skews the overall average.

Now, let’s finish this off with looking at how August, another traditionally challenging month, can impact September’s performance.

When August closes higher, September has been in the red by roughly 1/3%. Since 2000, that figures more than triples although it is negatively skewed by two massive bear markets.

When August closes up during a bull market, September trends to the positive by roughly .25% and that figure triples since 2000.

In short, although I offered an awful lot of stats about September and its historical poor returns, it seems like the most important determinant is whether the month began in a bull or bear market. In today’s case, stocks are clearly in bull mode, thereby muting the negativity of the month.

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