Decisive Breakout in Stocks but Bitcoin…

First, it seems like all of the talk lately and this week is about Bitcoin and the crypto sector. Do you care?

Regardless,, will you take 10 seconds to answer three short questions?

TAKE SURVEY

With post-Thanksgiving being slightly seasonally weak, Tuesday’s action was a pleasant surprise for the bulls. Yesterday, I mentioned that while there were a number of very short-term crosscurrents, the intermediate-term remained positive. Four of the five major indices saw decisive and significant breakouts to new highs while the NASDAQ 100 lagged behind and seems to be in for a short-term struggle.

Last week, I briefly spoke about how the semis looked tired if I had to nitpick. That remains the case. Banks had a huge up day and are poised for new highs sooner than later, really good sign for the bull market. Discretionary continued its blistering run while the transports are not only playing catch up, but leading as well. Mostly very good news for the bulls.

High yield bonds have bounced back smartly from their two week drubbing, but they need to step up even more heading into year-end.

The NYSE A/D Line is back to new highs after so many pundits used the modest November pullback as ammunition to call for a correction or end of the bull market. When these jokesters finally avow the bull market after 8+ years of being perennially wrong, we will all know to watch out for a bear market!

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Another Seasonally Strong Day but Europe Should Not be Ignored

I hope everyone had a great Thanksgiving with lots of good food, family and friends. As I wore the hypocrite hat this year, we celebrated ours on Wednesday night so my daughter and I could fly to Oregon on Thursday to watch the UCONN men and women play in the PK80 basketball tournament in honor of Phil Knight’s (Nike founder) 80th birthday. The men played such a great game to beat Oregon last night, something I definitely did not expect. The fun continues.

Turning to the markets and the holiday-shortened half day, as Wednesday was seasonally a very strong day, the same can be said of Friday. Stocks rally most of the time and certainly much more than random. I expect to see new highs by most, if not all of the major indices. High yield bonds continue to look good. We’re seeing broad participation in the rally. Key sectors are strong. If I had to nitpick I would say that they semis look a little tired and are in need of a pause or small pullback.

One thing I want to continue to keep on the radar screen in the hugely big picture is that all is definitely not well in Europe. While Merkel did end up winning the German election, she did so with only 33% of the vote. And now she cannot form a coalition government. At the same time, there are many problems in the Spanish and Italian banking systems which few seem to be discussing or even caring about. This is not a here and now issue, but it will certainly be one of those big picture things to keep an eye on in 2018 as this could have widespread impact on the markets and economy.

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Long & Strong for the Bulls. Happy Thanksgiving!

The bulls were long and strong on Tuesday with all five major stock market indices hitting all-time highs. You just cannot argue with price momentum. Semis, discretionary and banks were strong while the banks were just okay. We saw very good participation when looking at the NYSE A/D Line. High yield bonds were up but they could not add to their first half hour gains. Commodities, led by oil, just finished a little pullback and seem poised for a run to new highs by year-end. Because transports also look like they are ready for run, it will be interesting to see if we can get oil and transports to run together.

The day before Thanksgiving is traditionally one of the strongest days of the year. Because of Tuesday’s big surge, I wouldn’t be surprised if we just saw a mild drift higher without much fanfare. And Friday, where stocks are only open until 1PM, is one of the slowest days of the year.

The biggest news right now is that Angela Merkel cannot create a coalition government in Germany. For years, I viewed the 2017 election as the single most important geopolitical event since 1999. When she won, people questioned my take. Remember, Merkel won with only 33% of the vote,  not exactly a strong mandate. Don’t underestimate her inability to form a government. Elections may be called again for 2018.

Finally, I want to wish all of our loyal and devoted readers a very Happy, Safe and Meaningful Thanksgiving! It’s my favorite holiday of the year with family, food, wine and football. This year, I am donning the hypocrite hat as we are having Thanksgiving dinner on Wednesday so my daughter and I can travel to Oregon to watch the UCONN men and women participate in the Phil Knight (Founder of Nike) PK80 basketball tournament. Whatever you do, hopefully you can pause and realize that there is always something to be thankful for.

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Bulls Stampede Ahead. The Hatred and Disavowing Continues

It looks like the bulls are getting a jump on the very strong seasonal tailwind that exists the day before Thanksgiving. All of the major indices look to open strongly to the upside with all-time highs across the board possible by the time we dig into the turkey. On the sector side, semis continue their relentless rally with consumer discretionary really kicking it into high gear. Banks are climbing nicely and transports look poised for perhaps the most upside in the short-term. While they still have a ways to go to repair the recent damage done, I am not ruling out new highs within 8 weeks.

While high yield bonds made all the headlines over the past few weeks with their little waterfall decline, they have quietly recovered more than half of their losses with upside in store. By the same token, the NYSE A/D Line is now just one good day from a fresh all-time high.

What remains absolutely amazing is that the major stock market indices “corrected” all of 1.75% yet the media made it seem like the bull market was over or a real correction was unfolding. Now, that 1.75% pullback did mask some weakness in many stocks, bull markets do not end with the behavior I have described over and over again. Since the bull market launched more than 8 years ago, investors, traders and the media loved to hate and disavow it. Granted, it’s a lot less hated and disavowed now than it was, but until the masses adopt the “buy all dips” mentality and CNBC stops running “Signs of the Top” segment after a tiny bit of weakness, the bull market will continue. Dow 25,000 is up next sometime during Q1 of 2018.

One thing I do find laughable is how the political parties spin the stock market’s rally. When Obama was in office, the democrats pointed to the bull market as a sign their policies were working and workers were benefiting in their 401Ks. The GOP gave Congress most of the credit or said that the market would have been even higher without Obama. Now, Trump goes from dismissing the bull market during the campaign to using it as a report card for his presidency. And the GOP leadership extol the virtues of their pro growth policies while the democrats scream that only the “rich” are doing well. You just have to laugh…

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Bulls Plow Ahead Despite Major Issues in Washington

Stocks opened strong and surged all the way to 2pm on Thursday, as the bulls sprung back to life. Small caps led in a big way and the NASDAQ 100 scored an all-time high. Perhaps most importantly, junk bonds saw a huge day and began to repair the damage inflicted over the past month.

On the sector front, semis are back to within one good day from new highs. Consumer discretionary which I left for neutral last month is also at fresh highs. Transports and banks put in nice days, but they have much more catch up work to do.

The most important thing for today is that the bulls don’t give too much back. Markets are heading into a seasonally strong week with my favorite holiday of the year, Thanksgiving, on tap. Unless the bears can make some noise today which is also option expiration day, stocks should be on decent footing next week.

All year long I have discussed reality over rhetoric. As I posted on Facebook yesterday, in spite of Roy Moore begin abandoned by the GOP in his Senate race for allegedly having sex with a minor and pictures of Senator Al Franken groping a woman and Senator Bob Menendez’ jury deadlock on corruption charges and the House passing their version of tax reform which will be D.O.A in the Senate, the economy and markets continue to forge ahead. Dow 25,000 in the first half of 2018…

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Bounce on the Way. Will It Stick?

After nothing more than one really bad day in most of the major indices, stocks look like they want to bounce, at least a little. The key index to watch will be the Russell 2000 which peaked in September and has seen an orderly 3% pullback ever since. For the past week, the small cap index has been trying to put in a low. Additionally, although early, this index will also have a seasonal tailwind next month and into January.

Additionally, on the sector front, the Dow Transports have been beaten down, losing more than 5% over the past month. They are also important to watch as their failure to meaningfully bounce will likely spell a quick end to any rally.

Finally, high yield bonds put in the most constructive behavior on Wednesday, reversing sharp early losses to close in the upper end of its daily range as you can below by the last green candle. Along with the Russell 2000 and transports, junk bonds led stocks to halt their rally, so any bottoming action could help lift the major stock market indices.

We’ll see if a bounce develops and can be sustained. The bull market isn’t over, however the concerns I have discussed for the past month remain real and unrepaired, three of which are shown above. I really want to see any future rally correct the problems and not add to them. Having more stocks participate, especially on up days at new highs would be a good step.

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Strong Case for Bears But Bulls Could Be Ready Again

And the pullback continues. Everything I have mentioned lately is still in place and uncorrected. We have sentiment that’s a little too bullish. High yield bonds under pressure. Sector leadership weakening. And a very split market with the same percentage of stocks doing well as poorly. Except for price momentum and the positive time of year, the stock market does not look good. Yet with all that, the Dow is less than 1% from all-time highs. Bulls have something to support their cause. Bears too. While this behavior is definitely indicative of an aging bull market, it can and has lasted for almost two years in the past.

Over the coming days, it will be interesting to see if the bears can make any headway. On the surface, this looks like their best opportunity of the year, especially with junk bonds struggling. However, if semis have a good day and see new highs, that would damage the bears’ case. Additionally, the banks look like they are going to rally more. Discretionary, which I left for neutral to dead last month, just scored an all-time high. And the battered and beleaguered transports are trying to bottom after a 6% pullback.

Lots of crosscurrents.

I did an interesting interview on the Nightly Business Report on Monday regarding GE and dividend paying stocks. As I will be in the car for 5 hours on Wednesday, hopefully I can get that piece done and out quickly. It’s not often you see a bellwether, mainstay like GE taken out and shot on a billion shares traded.

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Lots of Concerns Abound

For the past 5 weeks I have often written about the elusive stock market pullback and the reasons why we shouldn’t be surprised to see it occur.  We had seasonal headwinds post-September. We had strength into earnings season. We had overly bullish sentiment. Nothing really mattered for more than a day. And just because stocks are seeing some weakness here, I am not beating my chest with “I told ya so”. Being early still equals being wrong.

Over the past two weeks, we have seen some other negative behavior in the Dow, S&P 500 and NASDAQ 100. Essentially, as each index hit new highs the number of stocks declining outpaced the advancing stocks. That’s not exactly healthy, especially when it’s happening over and over again.

Additionally, as I will write about in the next Street$marts, take a look at the two charts below. In the healthiest of markets, the Dow Industrials and Transports make new highs at or around the same time. Last month, the transports peaked and began to correct as the industrials continued higher. That’s a warning sign. Furthermore, this week we see the industrials score a fresh all-time high, but the transports are making a 30 day low. Again, that’s not exactly the behavior you see in strong markets.

I could continue on and talk about the banks or high yield bond warning or NYSE A/D Line, but I will leave that until next week. For now, these are all short-term concerns of mine and I continue to believe that the bull market remains alive, but a little less well than it had been. Dow 25,000 is next.

Enjoy the weekend! I am just back from Chicago and New Orleans where I was sick in both places. There’s is nothing fun about traveling when you’re under the weather. The night before I left was the first time since the 1990s where I had a fever. Happy to be home in my own bed and hope to shake this thing soon!

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New Highs Abound But a Few Cracks Developing

Suffice to say that the bulls have basically stampeded any and all attempts to take stocks lower since mid-August. However, for most of that period, the market’s foundation was rock solid and bears were just fighting against strong momentum. Recently, that has changed. Because I have been traveling since late last week and a bit on the sick side, I haven’t spent the time to create the charts to support my point. The Dow, S&P 500, S&P 400 and NASDAQ 100 are all at new highs. Yet with the succession of new highs last week, the number of stocks advancing versus declining on a number of days was actually negative. That means each of those highs was made with less participation, not exactly what you normally see in a healthy uptrend. However, keep in the mind that this behavior can and has continued for days, weeks, months and quarters before the market lost steam.

Turning to high yield bonds, we can see that they are not confirming recent new highs and have actually experienced a little pullback. It’s nothing big or significant yet, but it’s worth noting.

The NYSE A/D Line tells a similar story and looks a lot like JNK above. While the level of participation is diverging from the new highs in the indices, it is certainly not at an alarming level. Additionally, as with junk bonds, we have seen and can see this kind of behavior to last as long as 20 months before it matters to the market.

The bottom line remains the same. While there are a few cracks in the pavement with stocks very extended, momentum has been historic and difficult for the bears to easily end.

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Pullback in Motion. Dow by Itself.

The Dow has now seen three straight days of negative behavior but the index remains a whisker from new highs. The big picture reveals some almost precedent setting behavior in the Dow as more stocks are closing lower than higher as the Dow was hitting all-time highs. That’s not your typical sign of strength.

The S&P 500 and S&P 400 are a little weaker with the Russell 2000 and NASDAQ 100 a little more so. The pullback I have been discussing all month is here as I mentioned on Monday. I still not expect it to be anything major, significant or worrisome. In fact, it could even just be a sideways pause.

While overall sector leadership remains very constructive, semis are extended and transports and discretionary need some time here. Banks are stepping up and they should see new highs later this quarter. High yield bonds finally pulled back and the NYSE A/D Line looks to be rolling over in the short-term. This is all happening against the backdrop of strong earnings which are being sold into. Buy the rumor, sell the news.

Long time readers know my theme of a secular bull market in the dollar that has been put on hold in 2017. Don’t let the media fool you. The bull market ain’t over. The greenback bottomed and is rallying again. The euro is in big trouble as is the yen. They should both be going sharply lower next year and after that. It’s going to get ugly.

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