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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Q3 GDP Sees Another Resurgence & Energy Looking Sweet Again

On Friday, the government released a first look at Q3 GDP which I had been looking in the 3% range before the hurricanes hit. It wouldn’t have surprised me if that number was a quarter to half point lower. However, even with the hurricanes, the resilient U.S. economy still grew by 3%. All year, I have written about the economy accelerating to the upside in Q2 and Q3 with the election as the catalyst. Way too many people underestimated the powerful impact of the GOP sweeping the board last November.

Of course, the president wants to and will take the credit for the resurgent growth; they all do But I firmly believe that almost anyone in the GOP would have seen the same or similar results. It’s the sweep that mattered. Anyway, not only is the U.S. economy accelerating higher but so is the rest of the world. Japan and Europe are showing growth that far exceeds analysts expectations and the best numbers in years.

This all translates into booming global stock markets, but that’s nothing new. Remember, stocks move long before the data do, roughly 6 to 9 months. Today, stocks are a little jittery after Kevin Brady offered that a “phase in” of the corporate tax cut is on the table. That’s the same Kevin Brady who once thought the border tax was an absolute certainty. We’ll see. I still think comprehensive tax reform gets passed by mid February, but I am losing a little faith that it will be as good as I once thought.

In the markets today I am looking at a small pullback in stocks, but the energy sector looks to be ready for another leg higher. That could be 10%+ into year-end if the stars line up properly.

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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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