Pretty Good Little Fight

It’s been 24 years since I moved out of New York City to the calm and quiet of CT. I love hearing nature at night in my pitch black bedroom instead of the horns and trucks driving down the avenues. I stayed in the city last night as I had an early conference for our custodian this morning at the NYSE and I wasn’t really interested in getting up at 4:30am to train in. Well, I forgot how loud the city is all night and I am operating on very little quality sleep. So, please excuse any typos, grammatical errors or just plain stupid comments.

Very quietly, the Dow and S&P 500 has been down three straight days. In this market, that could be accused of being a correction or even a bear market! While the S&P 400 and Russell 2000 have declined more, they look like they are in the very early stages of stepping up to lead. That would be a much welcomed development if it happens.

Meanwhile, the NASDAQ 100 is behaving in textbook fashion after the second “shock” day in a month. That index remains volatile but nowhere near so as two weeks ago. As the tech sector works through this consolidation, it’s interesting to note that essentially all trading activity has remained in that tall, red candle from the “shock” day as well as below the mid point of that day. Meanwhile, a very defined trading range has been established as you can see below. It’s tough to get really excited for the bulls or the bears until one end of the range is closed above or below. I do expect, however, that the ultimate resolution will be to the upside, regardless of what happens over the next month or two.

For the first time since March, my favorite canary in the coal mine, high yield bonds, is under pressure. While it would be very easy to dismiss this because of the collapse in energy prices, I usually don’t buy the whole “qualifier” argument. The energy sector has a significant percent of high yield bonds. Think about all those mid and small size U.S. energy companies drilling for oil in the shale. Many used debt to finance those operations and when oil goes down in price, their ability to profitably drill becomes an issues. If theses companies can’t drill profitably, their ability to service their debt gets called into question.

Anyway, junk bonds are falling and regardless of the reason, it’s a short-term cause for a little concern right here until they stabilize. If they continue lower, and some other pieces fall into place, I will have to reassess my intermediate-term forecast for stocks, but that’s putting the cart way before the horse. To counter the high yield bond concern, the NYSE A/D Line scored yet another fresh, all-time high this week.

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Seasonals Say No, But Bulls Say Yes

The major stock market indices closed last week on decent footing and should be poised for further gains with the Dow and S&P 500 seeing new highs first . Even the recently hit NASDAQ 100 hung in and remains above the line in the sand I drew last week. However, this week is a seasonally weak one as it’s the five days immediately following June option expiration. We’ll see how that plays out as pre-market indications show a higher open.

On the sector front, it remains the “bizarro” world with the opposites now in charge. As semis and discretionary ceded, the bears were all over this “collapse” in leadership. However, as has been the case so many times during this epic bull market, rumors of its demise have been greatly exaggerated! Transports, banks, healthcare and industrials are now leading stocks to Dow 23,000. High yield bonds are chugging along and there continues to be broad participation. Don’t overthink it. Buying the dips is the correct strategy.

FYI. I have received lots of emails regarding Amazon and should people buy it. My short answer is NO. I am not a fan at $1000 after seeing it rally more than 100% in 18 months. While it will ebb and flow with the NASDAQ 100, I think there are better risk/reward opportunities elsewhere.

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Bulls Still in Charge (as is Amazon!)

The major stock market indices put in a very constructive day on Thursday with stocks opening at their lows for the day and closing in the upper end of the range. The beaten down NASDAQ 100 saw the best behavior as it tries to repair itself from two unexpectedly large and volatile down days over the past month from all-time highs. One clue will be a weekly closing price for this index and the semiconductors near the high for the week. That won’t happen today. As long as the major indices and tech sector do not close at new June lows, the bulls have the ball, even if that means some sideways movement for a bit.

Leadership continues to rotate with the banks and financials really stepping up along with transports, industrials, REITs and healthcare. High yield and the NYSE A/D Line scored all-time highs this week. All of this gives me additional confidence that after this pullback ends, another leg to 22,000 is coming.

The big news of the day is Amazon’s proposed buyout of Whole Foods which is certainly a landscape changer. Amazon being the disruptor that it is getting into the grocery store business? That is not going to make Costco and Kroger’s and WalMart and Target very happy! It will be interesting to see what happens with the Blue Apron IPO. Who really wants to compete with Amazon? Look what WalMart did to its competitors!

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Another Tech Wreck

Between the ECB, UK and Comey, there was lots of news to digest. However, stocks really didn’t seem to care. The ECB did nothing and hinted that the European economy was improving. Comey testified and you couldn’t turn left or right without hearing “expert” commentary from the pundits. As expected, it was much ado about nothing.

The big shocker came from the UK where PM Theresa May underestimated her constituency when she called for a general election. Hoping to strengthen her position in BREXIT negotiations, the UK people removed her party’s majority, forcing a coalition government. Not many people saw that coming!

Stocks really didn’t care as Friday began and I don’t think they will by the time Friday ends. The story will end up being the one day tech wreck. Pull up any chart you want of any momentum stock or ETF and they will all look the same. In one, big, red fell swoop, a few hours erased several weeks of gains as we have seen many, many times before during a creeper market.

Apple NVIDIA Netflix Google Facebook QQQ MTUM SOXX IGV and on and on and on.

Although it’s only one day, the selling and volume are vicious so far and the rotation out of the highfliers and into the value stocks is extreme today. Just look at the banks, healthcare, energy and the small caps. You would normally expect to see staples and utilities rally, but not today. This looks purely like a rotation into the laggards. With junk bonds quiet and the NYSE A/D Line positive, I am not going to view this with the bears. Let’s see if the rotation in leadership is a short-term thing or not as well as if it’s a warning sign for the overall market, which I think not.

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What Else is New? The Bears are Wrong!

Two whole days of consolidation. In modern terms, that sounds like a correction! Of course, I am kidding as pullbacks have been few and far between lately, not to mention shallow and brief. The Dow and the S&P 500 are digesting in textbook fashion with the S&P 400 and Russell 2000 still not behaving the way I would like. The former is starting to show very early signs of leading, but we have been down this road before. The NASDAQ 100 continues to march to its own beat and resemble 1999 more than anything else. But before you ask, the answer is NO. I do not believe we will see a similar outcome to the Dotcom bubble implosion.

Semis, software, discretionary, industrials, materials, healthcare, staples and utilities are all at or close to new highs and either leading or behaving very well. So much for the bearish pundits who opine that the rally is “narrow”. It is also great to see the transports moving higher and trying to to lead again. With high yield bonds and the NYSE A/D Line just short of all-time highs, it’s hard to see anything more than routine and healthy pullbacks.

Thursday is set up for a plethora of news with Comey’s testimony, the ECB meeting and the election in the UK. I am going to go out on a limb and say that whatever the news is, the markets won’t really care. The bull market isn’t over. This rally isn’t over. My next upside target of Dow 23,000 remains. Don’t overthink this.

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Mixed Messages to Start the New Week

A new week, more of the same geopolitical news. Terrorist attacks in London. Trump tweeting. Economic mixed messages. Fed to raise rates. Stocks see more new highs.

Friday’s market behavior was fine with the Dow, S&P 500 and NASDAQ 100 all adding to their recent new high run, however the S&P 400 and Russell 2000 seemed to run out of gas after lunch. Participation and leadership were solid.

Friday’s employment report was also a mixed bag with the economy creating fewer jobs than expected, but the unemployment rate fell yet again to new lows. That’s because less people were in the count. The actual number of new jobs was fine, but significantly higher than May 2016. As I continue to offer, our work suggests that economic output and job creation should see a sharp improvement right about now and be reflected in the rest of Q2 and all of Q3’s data.

The rest of the week sees lots of geopolitical news with the ECB meeting, election in the UK as well as James Comey’s testimony. If nothing else, it should be an interesting week.

For today, I am watching oil, S&P 400 and Russell 2000 for short-term signs.

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Love or Hate It, Markets Don’t Care about Trump

On Thursday, the Dow and S&P 500 broke to fresh all-time highs to join the NASDAQ 100. The major index trading range since early March appears to be ending in favor of the bulls. I say “appears” because although breakouts are beginning to occur, every now and then they are fake (like news) and immediately reverse and head in the opposite direction. Only the S&P 400 and Russell 2000 are lagging, but I would think they should both follow suit this month.

As I have continually written about for weeks, months, quarters and years, these next two indicators (canaries) are almost all you need to keep you on the straight and narrow. While the bears continue to claim the rally is “narrow”, the data say otherwise as the NYSE A/D Line makes new high after new high. That’s called a broad-based advance!

High yield bonds are below and it’s really the same story. More all-time highs on a total return basis. Liquidity is very strong and 10%+ declines usually don’t begin with the backdrop.

For the past month or so, I have offered that risk outweighed reward by 2:1. During that time, stocks saw a one day thrashing from more nonsensical news like impeachment. Since then, there has been lots of positive developments with the AD Line, junk bonds and sector leadership. At the same time, sentiment has not become too frothy.

Today, the employment report was short of expectations yet stocks continue to rally. Resilient. Reality over rhetoric! Do yourself a favor and stop watching the news to determine what the economy and stocks will do. The markets do not care what Trump says or does no matter how much you personally may love or hate him.

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Little Tantrum Beginning

The bulls began Wednesday with high hopes (and higher prices). By lunch time, it looked as if the market was ready to test its early March, all-time highs although the NASDAQ was already at new highs. But a funny thing happened on the way to Dow 21,000; the Fed released their minutes from the last meeting and the market did not like what they had to say.

In essence, the Fed was preparing to test the markets on unwinding their massive $4.5 trillion balance sheet later this year. It’s already been leaked and talked about, but it still poked the market a bit. At this point, the Fed plans on raising rates one or two more times and then halting the hikes to test selling some assets. Frankly, I did not believe this would happen in 2017 or even 2018. I thought the Fed would complete their tightening cycle and let the assets roll off organically over the years after they stopped reinvesting the proceeds. Clearly, I was wrong and the markets are a little cranky.

As long as this little tantrum continues, I would expect the banks and dollar to be under pressure with gold, euro, yen and treasury bonds firming. Downside risk in the Dow looks to be roughly 20,300. Let’s see if high yield bonds can hang tough this week.

Before someone asks, no, the bull market isn’t over.

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Q2 Begins with Higher Expectations

Stocks closed the first quarter without much fanfare and they head into Q2 with a strong seasonal tailwind. The major stock market indices are still not all in gear to the upside, but I expect that to correct itself this quarter with new highs across the board. Semis and discretionary are still very strong and I expect transports and banks to reassert themselves. Junk bonds had a very strong close to the quarter and they will need to continue that run this quarter.

Earnings season begins next week and the comps from this time last year will be very easy to surpass. However, analysts have really increased their expectations so companies need to blow out to the upside or those stocks will suffer.

My theme remains unchanged. The bull market is alive and reasonably healthy. Dow 23,000 is my next target. Weakness should be bought.

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Bulls Put Up A Stand

Yesterday, I wrote about the pullback getting a little old and the opportunity for stocks to find a low and rally. I offered that Dow 20,200 to 20,400 could provide some cushion. The Dow hit 20,400 yesterday morning and rallied nicely into the close with some follow this morning.

Was that it? Pullback over?

I am not certain, but we did do some buying yesterday to take advantage of the biggest bout of weakness this year. And it wasn’t much. Stocks could rally for a few days and then rollover one more time or the rally could have already started. I am okay being a little early, just as long as we don’t see a full scale melt down below 19,800.

As I mentioned the other day, high yield bonds bottomed last Wednesday and are now leading stocks over the very short-term. That’s a good thing. Defensive sectors are lagging with my four key sectors, banks, transports, semis and discretionary stepping up again.

Finally, I am keeping an eye on the Japanese yen as it has rallied the most during the stock market’s pullback. If that comes under pressure, I will feel better that the little low is in and new highs are coming.

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