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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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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Stocks Continue to Creep But Best Opp for Pullback is Now

It’s really the same old story as we begin the new week and the final full week of October. The intermediate and long-term continue to look strong as they have for days, weeks, months and quarters. Nothing has changed. The short-term is the time frame where it’s neutral at best. I have said all month that the bulls need a little rest, but they haven’t seemed to care.

Today, as I look at the five major stock market indices, the Dow is looking more and more like a tech stock and the NASDAQ 100 like a stodgy Dow stock. That’s not exactly the behavior normally seen in the healthiest of markets. However, as I wrote last week, the bulls have been running like they’re in Pamplona!

At this point, there aren’t many cracks to concern me more than just a cessation of the advance or the modest pullback I have been wrongly writing about all month. Key sector leadership is good. Secondary leadership from industrials, materials, energy and healthcare is even better. High yield bonds and the NYSE A/D Line are at all-time highs.

It’s been one of those “creeper” markets as Jason Goepfert of Sentiment Trader calls it, where day in and day out, stocks just slowly climb higher and higher. Martin Armstrong, one of the few outside reads I have, calls it a “vertical market” where everyone “gets drunk at the party but no one is really having a good time”. It’s the kind of market where is you are long, you just sit back and grin. If you have been waiting to buy, it hasn’t been any fun. Having been on the wrong side of a creeper years ago, it was one of the most frustrating periods in my 20 year career.

The bottom line is that stocks remain a little tired and if that modest pullback is coming, it should be here right now.

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Bulls Running Like Pamplona

This is looking more and more the running of the bulls in Pamplona. They just stampede anyone and everyone in their way. After the two strongly positive seasonal trends ended after the first week of October, there was sufficient evidence that stocks were due for a pause to refresh or modest, single digit pullback. That’s what I was looking for. Nothing big. Nothing significant. Nothing really actionable. Just your garden variety reset.

Stocks came out of the gate to the upside on Friday after what I kiddingly referred to as a one day bear market on Thursday. All of the major stock market indices are at or essentially at all-time highs. Bears can’t argue with that. My four key sectors are also acting very well with semis and banks at new relative highs with transports and discretionary catching up. In recent weeks, I wrote about the poor behavior by the banks, but that is changing today.

High yields, while not leading and looking a little lifeless, are still just a day or two from all-time highs. The NYSE A/D Line is also just a whisker from new highs. On the other hand, defensive sectors, like utilities, telecom and staples are the worst sector performers. For the first time since Q1, bond yields look they could break out to the upside and see the 10-year note head above 2.6%. That would be a huge tailwind for banks and signal that the economy may be heating up.

Stocks should end the week on a high note. Interesting how GE reported awful earnings yet again and the stock opened sharply lower by more than 5%. As I type this, it’s trying mightily to turn green on massive volume. If that 4%+ dividend is safe…

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Banks Selling the News. Transport Close By

Earnings season is now in full swing which means that every morning. pre-market, you will find a slew of companies reporting as well as offering guidance or forecasts about the future. That creates a much higher level of single stock and sometimes single sector overnight risk. Right now, the major banks are reporting, after experiencing a near vertical ascent into Q3 quarter end.

The last time I wrote a specific article about the banking sector, it had just touched a three-month low and I offered a very binary outcome. Either it was going to rally strongly to new highs or collapse. Unfortunately and uncharacteristically for me, I didn’t have strong conviction which would be the ultimate outcome.

As you can see above, banks followed the super bullish scenario (line in green) almost perfectly and scored new highs right before earnings season began. On the surface, the average investor would probably become very excited about this development. However, with more than a 10% run before earnings season, I argue that good earnings are expected and already priced into the sector. In other words, investors bought the rumor of good earnings and selling the news. As such, banks would need to really blow out earnings on the upside to keep momentum going which I do not think is likely.

Both JP Morgan and Citigroup reported earnings on Thursday morning. While they both beat expectations by 11 and 10 cents respectively, both stocks closed lower in what technical analysts sometimes refer to as a key reversal day, where a new high is seen and they immediately rejected. Then the close is lower than the previous day’s low. It looks like a long, red stick as you can see below for Citigroup and it has negative implications.

I bring up the banks and reactions to earnings as it shows a tired banking sector. Should banks see a soft patch, that would likely translate into a cessation of the overall stock market’s rally, if not outright, short-term, modest pullback and I have discussing for October. Again, I do not see anything meaningful or long lasting on the downside, just a short-term bout of mild weakness.

Finally, although semis continue to make new high after new high, the transports are seeing somewhat of a reversal as I type this, scoring a fresh high this morning and weakening all day. At the same time, treasury bonds have been quietly rallying along with the defensive sectors, showing that “risk off” is now showing at least a little merit.

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3 Reasons Stocks Will Peak Right Now

Good Monday Morning! Huge weekend if you are a sports fan although the decision making of my Yankees’ and Cowboys’ manager and coach likely just ended their seasons. At that level, the margin for blunders is razor thin and both Girardi (4 stupid decisions in 40 min) and Garrett (one giant brain freeze) cost their teams. While I have never been in their shoes, it’s the same thing I face each and every market day. Over the past 29 years, I have probably made every bad decision one can make, but hopefully, I learn from those as I move forward.

Stocks begin the week with all five major stock market indices at fresh new highs along with high yield bonds and the NYSE A/D Line. So are the banks, semis and transports among key sectors. As I have said over and over and over again since 2010, bull  markets do not end with this type of behavior. Sorry to all of the bull markets haters and disavowers; you have been wrong, are wrong and will be wrong until the evidence changes. And when they are finally right, I am sure they will crow about how they knew it all along. Reality over rhetoric.

With all that said, the very short-term has an opportunity to change right here and now. If there is going to be the mild, modest pullback in October which I have written about lately, stocks should peak this week for three reasons.

1 – September ended at its highest close of the month for the S&P 500. That leads to another week of strength, roughly 1%, and then a give back of more than 1%.

2 – When October begins the month in an uptrend, the first five days tends to be higher. However, the next five and the five days after that and the final five days of the month all show mildly negative returns of roughly -0.25% each period.

3 – Stocks rallied hard into the beginning of Q3 earnings season, using up a lot of fuel. That usually means earnings are priced for perfection and rarely exceed expectations.

BONUS – The Economist and Barrons have run very bullish headlines this month about how the global markets and economies are hitting on all cylinders. Additionally, the term “melt up” is all over the place on blogs and Twitter. While this is nowhere even close to the true irrational exuberance of 1999 and early 2000, it does give bulls a little cause for short-term concern.

Finally, I am not going to rehash the piece I wrote about the negativity of Octobers in years ending in “7”, but you can reread it HERE.

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Three Big Short-Term Changes Today

Looking at the economic news of the day, jobs created in September actually declined for the first time since 2011. On the surface, that would be shockingly disappointing and brings in calls for recession. However, all of the drop from the expected 100,000 created will be attributed to the hurricanes. The unemployment rate surprisingly fell to 4.2% from the expected 4.4%. Until the economies in Texas and Florida get back to somewhat normal behavior, job numbers are going to be volatile and more difficult to assess.

Turning to the markets, as I wrote about earlier this week, all of the major stock market indices saw new highs this week. This was expected as we have strong seasonality from October beginning the month in an uptrend as well as September ending the month at its highest close. Both of those tailwinds end TODAY with the October seasonal trends turning negative for the next three weeks. Additionally, stocks have rallied very hard into the beginning of earnings season which is now. Put another way, stocks have exhausted a lot of energy as companies begin to report Q3 earnings. It’s going to be difficult to maintain the rate of ascent, not to mention that companies better not disappoint.

While all of this may sound negative, I want to be crystal clear that I absolutely do not believe the bull market ended or is close to ending. I only have some very short-term concerns which may translate into a modest low to mid single digit pullback in stocks. Nothing to worry about over the intermediate or long-term. Semis, banks and transports all made new highs and discretionary has ceased lagging significantly. Industrials, materials and all at or near new highs. Energy is rallying sharply. All this as defensive sectors like REITs, staples and utilities are lagging. The recipe for higher prices remains firmly intact into year-end and into 2018.

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