The Neutral Theme Continues

Greetings from Dallas where I am attending NAAIM’s annual Outlook conference with the real thought leaders in the industry. Although I have been involved with NAAIM for almost 30 years, I still get excited and look forward to seeing old friends, meeting new ones and hearing from and participating with true cutting edge thinkers who aren’t beholden to Wall Street’s agenda.

So, here we are. Although my intermediate and long-term bullish outlook remains unchanged and emboldened, I remain neutral over the very short-term as I first mentioned last week when I turned in real time, right here. Where do I think the major stock market indices can pull back to? As I discussed last week HERE, I am not looking for anything significant on the downside, maybe a few percent here or there. And perhaps the bulls can just limit the downside to some sideways activity within a few percent band for a period of time.

While I am still very positive on semiconductors, banks and transports, other sectors are percolating and starting to lead equally as good. Communication services being among them. Don’t underestimate the importance of this development for the continuation of the rally. On the flip side, I have been bullish on the defensive sectors like utilities , staples and REITs and they seem to have peaked for now. Reducing those positions into strength seems like the correct strategy for the time being.

I am going to cut it off here so I can hear Doug Ramsey from the Leuthold Group offer his long-term bearish case, something I don’t agree with, but I am certainly open to other opinions. If nothing else, it helps me to solidify my own position or find holes in it.

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Pause to Refresh or Mild Pullback Underway

Earlier this week, I turned neutral for the short-term in the stock market. That’s all it is. Neutral when I look out a few days to a few weeks. I am not calling for any decline of significance and we may not even see a noticeable pullback. Stocks could go sideways to work off what I see as investors becoming a little too giddy or they could mildly pull back. My work doesn’t support much more than that. Of course, as always, I could be dead wrong and stocks soar from here. I don’t see that happening just yet.

When looking for logical (when it the market ever logical?) areas for a pullback, I direct you to the horizontal blue lines on the Dow, S&P 500 and NASDAQ 100 below. If we get some mild weakness, I am just looking at what probably too many other people are looking at.

Finally for today, the Dow Transports are getting a lot of attention because after more than a year of not confirming the positive action in the Dow Industrials, they are both trying to score fresh, all-time highs. While yesterday’s assault attempt was thwarted by the bears, I think the transports are close to breaking out and soaring further into January. More on this next week.

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Dow Joins Party. Stocks a Bit Tired

Greetings from 36,000 feet on some bumpy air, which is the norm when I fly. On Monday, the Dow Industrials joined the S&P 500 and NASDAQ 100 in fresh, all-time high territory. That’s now three of the five major stock market indices which have accommodated my bullish forecast. The last two, S&P 400 and Russell 2000 still have a ways to go, but I am still very optimistic that they will join their cousins later this quarter or by early 2020. Both lagging indices are behaving constructively with solid foundations to launch higher. Here are the midcaps below.

With all that said and the endless patting myself on the back for being so bullish, I do not believe adding new money nor getting more aggressive is the right play here. I think there is a decent chance that stocks are peaking in the short-term and will either mildly pull back or move sideways for a spell. I continue to believe that any and all weakness is a buying opportunity until proven otherwise.

 

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More New Highs Coming. The Celebration Continues.

Right on cue, the NASDAQ 100 followed the S&P 500 into all-time high territory. And before you ask, I still believe the Dow, S&P 400 and Russell 2000 will be there shortly. Not a single note of my tune has changed. The bull market remains alive and well and higher prices are a comin’. Of course, you wouldn’t know this from listening to the chorus of bears who remain firm that Armageddon is just around the corner.

Taking a quick at some the things that really matter, we find my four key sectors are in good shape. Semis have fully broken out and are running strong. Banks are on the verge of their breakout and that should be happening this month. While discretionary has been quiet, I think they too will see new highs before Christmas. Finally, transports are behaving constructively and I expect higher prices into year-end.

High yield bonds have been very slowly plodding higher without much attention. Their behavior remains very supportive of a growing economy and continuation of the bull market, no matter how the bears want to spin it.

My theme is unchanged. Any and all weakness is a buying opportunity until proven otherwise. The masses have hated and disavowed this bull market each and every step of the way. Until we see the majority of very wrong bears turn positive, this market will continue to rise.

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Crickets and BUT BUT BUT from the Bears

Well, the Fed cut rates as expected. Powell said they are moving to neutral or pause mode, as expected. Stocks generally liked what they heard and closed near the highs for the day. Semis have struggled a bit over the past few days but I am not concerned in the least just yet. I think they have a chance to really soar into year-end.

This morning, the employment report came in better than expected as well as seeing upward revisions to prior months. Wage growth was a solid 3%. This report was Goldilocks and very hard to poke holes in. In a recent turn, good news is good news for stocks in the pre-market. That’s a nice shift and a rare kudos from me for the Fed.

The bearish crowd with the naysayers and gloom and doom’ers have been completely silenced this week. I hear crickets from most of them and “BUT BUT BUT” from a few of them. I laughed earlier this week when stocks were 1% and people emailed and tweeted to poke fun at me. 1%! HA!!

S&P 500 is at new highs. NASDAQ 100 will be at new highs today. The Dow isn’t far behind. The S&P 400 and Russell 2000 will take a little longer but they’ll get there sooner than later. Don’t rule out a sharp move higher by year-end for the stock market.

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All-Time Highs Are Here. WHO KNEW?!?!

The S&P 500 is poised to open at fresh, all-time highs this morning. Absolutely none of my readers should be the least bit surprised. I have written about it every single week this entire year. And the stock market isn’t done. I have made fun of and called out the bears every step of the way to outcries of “BUT, BUT, BUT” whenever presented with facts. They hate. They disavow. They call for the end of the world. They have been flat out wrong.

Stocks haven’t seen new highs since July and maybe this is one of those times where the masses get really excited and throw money at the market and then stocks see a short-term peak. I do not get that feeling, but I don’t have high conviction either. Rather, I could see stocks seeing some very nice strength this morning, leveling out and then not doing much until Wednesday afternoon after the Fed concludes their meeting.

My long-time favorite sector, semiconductors, scored all-time highs on Friday and looks to add on to that this morning. This has the potential to be one serious breakout and run if the stars line up. We’ll see.

I am a bit disappointed that REITs, which were in a similar position to semis, saw a classic breakout and then immediate failure as you can see below. It happens. Watch utilities and staples and read a lot into it!

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Stock Market Quiet. Earnings Volatile. Semis Getting Ready to Soar

Greetings from Baltimore where I am doing a quick one night trip to visit with some clients and an old friend and former colleague. As always, there is great food and wine. If all goes well and Southwest delivers, I should be home for Blue Bloods tonight and get a good night’s sleep for our final weekend of baseball and softball.

Stocks continue to trade very quietly this week, despite some wicked moves in individual stocks from earnings announcements. Twitter, Tesla, Texas Instruments, Amazon, Intel to name a few. Obviously, the news is on both sides since stocks cannot seem to make much progress in either direction. The major indices are very close to all-time highs, but it certainly doesn’t seem like earnings will be the catalyst to break out of that range to the upside, a scenario I still believe is coming sooner than later.

Taking the S&P 500, you can see the very strong rally from January through April followed by the first of three moderate pullbacks and a final powerful run into the July peak. With the trading range beginning at that July high, the odds heavily favor an upside resolution and I think it’s this quarter.

Amazon disappointed with their earnings and forecast last night, however the stock had been behaving poorly since July. If the stock market was truly weak and on the verge of a large decline, news like Amazon’s would have caused widespread selling in the pre-market leading up to today’s open. That’s just not the case. So far, it’s being treated idiosyncratically which bodes well for the bulls.

Two days ago, Texas Instruments was taken to the woodshed and the semis were hit for a 2% loss. As you know, I have been very bullish on this key sector for much of 2019 and I wondered whether this could be the thing that derails the train for what I see as a new all-time highs and I big run higher. Well, the market trapped the bears once again as Tex In was a one day wonder and fully offset when other semiconductor names like Intel reported very strong earnings. You can see this on the chart below in the second to last candle on the right side. I fully expect the semis to breakout above the horizontal blue line and make a run into new high territory.

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Lots of Negativity But Stocks Close to Blue Skies

Stocks begin the new week with the Dow Industrials masking the overall strength of the S&P 500 and NASDAQ 100. Remember, the Dow only has 30 stocks and they are weighted by price. So, high prices stocks move the index a lot more than mid or lower priced ones. Boeing has been hit with the ugly stick for 40+ points over the past two days which equates to roughly 280 Dow points.

While the Dow has stalled out with a few stocks lagging, the S&P 500 and NASDAQ 100 are  but one solid day from all-time highs. Most people find that hard to believe as there seems to be a sea of negativity these days. I was shocked to see option traders flood into negative put options last Friday, however, there may some undue influence from monthly expiration. Both the S&P 400 and Russell are still lagging, but they look like they want to play some catch up sooner than later.

My long favored semis are very close to new highs with the financials and transports really getting into high gear. Any one of these sectors could provide fuel for another leg higher, but if we get all four key sectors going at once, we could see a relatively fast 10% spurt over into January. Last week, I followed up on recent positive comments about REITs and right on cue, they broke out to fresh, all-time highs. Next up is to watch utilities and staples for signs that all defensive sectors are running again.

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Junk Bonds & the A/D Line Say All is Okay

From open to close, stocks have traded in a narrow range most of this week and around the same level each day except for Tuesday. As the old highs in the Dow Industrials, S&P 500 and NASDAQ 100 have come into reach, investors are pausing as they usually do to assess risk and reward. While I do not think it’s a layup for a breakout right here, I feel very confident that Dow 28,000 will be kissed this quarter with leadership coming from some of the key sectors like semis, discretionary and banks.

For all the talk about high yield bonds lagging and quietly forecasting doom, they are pretty close to an all-time high.

Additionally, let’s take a look at the NYSE A/D Line which is actually at new highs now. I have heard from pundits that the rally lacks participation, but the facts don’t support those claims. While stocks could always pull back, the odds favor the Q3 lows as being the lowest prices for the rest of the year.

 

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Deal? What Deal???

I am sure I am not the only one who is really skeptical about this “trade deal” with China being real. While I am sure the two parties agreed on some items, we are so far from a real deal, signed, sealed and delivered. This doesn’t even sound like an agreement in principle since the Chinese have a different recollection and their state run news service tells their own story. This saga is far from over.

The stock market was very strong on Friday in anticipation of a deal being struck. Almost too strong. I tweeted that I wished a deal would not have been announced until after the close so there could be a possible selling opportunity on a higher Monday opening. The Trump administration had other ideas. The Dow Industrials dropped 200+ points on the announcement to close near the lows for the day. That’s not exactly comforting and my gut says we could see some short-term weakness to give back all of those gains.

I still really, really like the action in semis, something I have discussed here over and over and over for most of 2019. There are a lot of things people can say about my opinion, analysis and forecasts, but being unclear on semis isn’t one of them. Nor is my call for Dow 28,000 this quarter. I may not get them all right, but I never, ever run or hide from any flops.

Finally, I am keeping a close eye on REITs as they seem to be the most constructive of the defensive sectors. As you know, I have been talking about a “barbell” approach for the past few quarters with semis, utilities, staples and REITs. Own the aggressive and conservative sectors. Leave the rest alone.

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