Bulls Are Resilient

On May 8th, I first started discussing what I saw as a skewed risk/reward ratio with 500 possible points of upside and 1000 points possible on the downside. Over the years when there was a decent chance for stocks to decline, I often referred to it as a window of opportunity that stays open for a period of time before closing.

Three weeks after my comments, stocks have basically gone nowhere. We saw a brief dip when the “hysteria” over Russia and Jim Comey came out, but as I said at the time, it’s reality over rhetoric and the markets and economy don’t really care about all the nonsense. With high yield bonds and the NYSE A/D Line at fresh all-time highs, the window for a decline is quickly closing and may be closed.

The longer we go without another bout of weakness, the less likely it is to happen. The leaders keep on chugging and the laggards show no signs of stepping up. In short, stick with what’s been working until proven otherwise. Semis, tech, industrials and discretionary. At some point, energy is going to stop behaving so poorly, but I want them to prove it. With oil up from $44 to $51, the energy stocks have barely lifted their head. That’s just plain ugly and perhaps getting to the point where it’s so bad that it becomes good.

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