Archives for October 2018

Crash Sequence Unfolding?

As you know from my emails, quarterly report and most blogs, I have been forecasting a stock market pullback for the past few weeks. Even when the Dow Jones Industrials finally achieved my late Q1 forecast of new all-time highs across the board on September 21, I was very concerned about a crumbling market foundation that would lead to a mid to upper single digit decline in October.

I couldn’t have been any clearer when I discussed my forecast on CNBC’s Squawk Box on September 25th.

https://www.cnbc.com/video/2018/09/25/dow-fell-for-the-first-time-in-five-days-monday.html

I repeated it on Yahoo Finance’s Midday Movers later that day.

https://sports.yahoo.com/dow-marches-why-energy-biotech-172228625.html

Speaking of Yahoo Finance, I am scheduled to join the Midday Movers team on Thursday between 11:30am and 11:45am. Just go to finance.yahoo.com.

The reasons for the impending weakness were numerous and they are proving to be very well founded. Participation in the rally waned. The market became split with an almost equal number of stocks making new highs as new lows with the major stock market indices hovering near all-time highs. In other words, there were an equal number of troops dying as there were troops forging ahead.

Wednesday was one ugly day folks. It was the day of recognition for many investors that something had changed in the character of the stock market. I know. I know. Interest rates had been spiking and you heard the media and pundits say that people were selling stocks and buying bonds. That sounds all well and good except for the fact that unlike what we are used to seeing, bonds did not rally on Wednesday when stocks collapsed.

And for those who are going to email me and pontificate the benefits of gold during times like these, well, gold barely moved and remains mired in a multi-year bear market. And no, there wasn’t a flight to the U.S. dollar either.

Volatility is spiking. When this happens, it is unusual for it to quiet down right away. And days like Wednesday rarely mark the final price low. The bears are making good progress, but they don’t appear to be done just yet.

In our portfolios, I am very thankful that we took dramatic action almost across the board to sell equities, raise large amounts of cash and/or hedge our exposure, long before the carnage began. With so much dry powder, I will soon be frothing at the mouth to execute my shopping list for a year-end rally. This is when my job is fun.

I chuckle when I see those in the media prognosticate from here when they got this decline entirely wrong to begin with. The act as if they saw this coming and took appropriate action.

Shortly, I expect the usual number of emails and calls from those who have been fully invested or worse, wanting to know what to do now. My answer has been the same for my entire career, whether I have been right or wrong about the market’s move. If you weren’t smart enough or lucky to get yourself protected before this decline began, I wouldn’t compound a problem with a problem.

When declines like Wednesday occur and I send impromptu updates, stocks usually bounce much sooner than later unless a crash sequence is underway. The market doesn’t have that feel right now, but it’s not something I would totally rule out.

For the foreseeable future, we should see huge swings down and up as stocks ultimately find a low, especially on Thursday. The rest of the week and first few days next week are going to be very important. I will keep you updated on www.investfortomorrowblog.com as much as I can.

Finally, to close with the silver lining, I still believe the bull market is alive and Dow 27,000 and higher remain in the cards.

As always, if you would like to discuss your portfolio or strategies, please reply to this email, call the office directly or use my online calendar. https://heritagecapitalllc.acuityscheduling.com/schedule.php

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

Bulls Need a Stand

After some early weakness on Monday, the bulls put up a little fight before succumbing to selling into lunch. From there, they did have enough energy to  bring stocks back to breakeven. Given the semi-holiday, that was semi-impressive. The bulls now have a little momentum and are supposed to run to the upside for at least a day or so. The S&P 400 and Russell 2000 have declined sufficiently to reach their long-term trend or the average price of the last 200 days as you can see below. That can often lead to a bounce.

If stocks can rally, I would expect bonds to bounce back as well after being crushed at one of the greatest paces in history.

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

Bulls Fail Again

My continued theme of a stock market pullback continues. The weakness is unfolding as expected. Small and mid cap indices have been hit the worst, but now the NASDAQ 100 is joining in. The rotation into the Dow and S&P 500 remains, but they are also down as well. Semis, discretionary and transports have rolled over and now the banks are in jeopardy of following suit. Energy, industrials and healthcare are sectors where investors are trying to hide and that may last a little while longer until the final leg down in the pullback. During that stage, I expect the leaders to get hit hard over a short period of time.

After Thursday’s weakness, the bulls were supposed to step up on Friday or at least not allow much downside. That didn’t work out so well as early strength was rejected pretty quickly and the bears went back to work. With overseas markets sharply lower, I would expect a lower open today with the bull pushing back on this semi-holiday trading day. We are supposed to see a rally into lunch. Once again, it will be incumbent upon the bulls to thwart any selling waves this afternoon.

I noticed more than a few indicators over the weekend which said that the risk in stocks has increased dramatically. While I continue to see much higher prices ahead, I am starting to wonder if this is the first nail in the coffin of the bull market.

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

The Bulls Better Step Up, and Fast!

For most of Thursday, the bears growled loudly with the largest losses being seen since the Q1 correction. But rallies and bull moves do not die easily. The bull fight and fight and fight until they finally throw in the towel and the market sees what I termed the “gap of recognition”. It is a sharply lower opening that continues lower throughout the day. The bull never recover the gap until after the decline ends and the next rally begins. That’s what I am waiting for now.

Beginning at 2:30pm, we often see the bulls step up when mutual funds begin to balance their buy and sell orders. During initial bouts of weakness from a peak, bulls are usually frothing at the mouth to buy. And right on schedule on Thursday at 2:30pm, the bulls came in to buy as you can see below.

With that predictable move, today presents and interesting day for the bulls. They are supposed to come back and stocks should be up. If we see early strength met by more selling in the afternoon, I think the odds would increase for my gap of recognition next week.

We know from this week that being long is wrong and the S&P 400 and Russell 2000 continue to lag or lead on the way down, whichever you prefer. Now, the NASDAQ 100 is joining the party and threatening to break the uptrend.

Transports and discretionary have gone from leaders to laggards while semis try to hang in. Banks, on the other hand, are seeing some buying pressure after being hit hard. That’s primarily because bond yields have spiked higher, giving banks a better opportunity to make money.

Junk bonds have now seen back to back tough days.

I have been warning for weeks about a potential mid to upper single digit decline in stocks. I stand by that. I think it’s here. There should be a super buying opp in a few weeks.

LET’S GO YANKEES!

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

Haves & Have Nots

As you know my theme over the past month has been about this “split” market developing and persisting. By “split”, I am referring to the number of stocks making new highs as well as new lows. The numbers keep climbing. Price hasn’t wavered although recently, the masses and media caught on to the fact that the Russell 2000 has been under pressure while the Dow Industrials have soared higher. That’s unhealthy behavior.

What you see above is pretty egregious. Almost anyone can now spot that. As such, I would expect that trend to move in the other direction sooner than later to punish the late adopters. And even if that happens, it is unlikely to change the internal weakness in the stock market.

The Dow is leading. The S&P 500 and NASDAQ 100 are close behind. The S&P 400 and Russell 2000 look awful. And now, my four key sectors are starting to show some wear.

While the window of opportunity for a pullback remains open for at least another few weeks, there remains that scenario where I will be wrong. If that’s the case I would expect no change in the weak underlying structure but price in the “haves” would somewhat melt up like we saw in late 1999 and early 2000.

For those wondering about gold, it remains in bottoming formation with the evidence still pointing higher. While crude oil has really been strong, I don’t think it peaks just yet, but I also don’t think the rally lasts a whole lot longer.

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

Q4 is Here But Market Still Biding Time

I cannot believe Q4 begins today. That’s just crazy. My grandmother continues to be right when she told me years ago that the older you get, the quicker time flies by. That woman who has always been my favorite family member never gave me bad advice and always listened to me. Even the night before she passed in her sleep at the young age of 98, she told me to only buy investments that go up. I should leave the ones that go down to other people.

Stocks closed Q3 on a quiet note, but it looks like Monday is going to see some upside fireworks to begin the day as news of a new NAFTA deal with Canada has been finalized over the weekend. While that’s a long-term positive economically, it doesn’t change my outlook for weakness ahead in the stock market. The window is open for at least a few weeks.

What if I am wrong?

That’s the question I get a lot. Well folks, it won’t be the first time and it won’t be the last. I play the odds. And the odds favor a cessation of the rally before heading to Dow 27K and higher. If I am wrong, we should see market internals or the market’s foundation strengthen over the coming weeks instead of continuing to deteriorate. Sector leadership should improve and the number of stocks making new lows should decline significantly.

We’ll see.

For now, let’s look to Wednesday night and American League Wild Card game between my Yankees and the As. The game is a toss up, but even if my team wins, I think the Red Sox will make short of them in the next series.

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