Saturday, December 9, 2017

Weekly Market Summary

Summary:  SPX, NYSE and DJIA made new all-time highs this week. This augurs well for the months ahead.

The leader, NDX, has fallen into a trading zone; a return to this week's low likely triggers a small correction to price levels from late October.  SPX would follow.

The big event this week is the FOMC meeting on Wednesday, during which a decision to raise the Fed Fund Rate is expected. This would be just the 4th rate increase this economic cycle. Each of the previous events was followed by a pullback in SPX and also a multi-week period where the index did not hold any gains.

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SPX, NYSE and DJIA made new all time highs (ATHs) this week.  All made an inter-day ATH on Monday and closed at an ATH on Friday. For Dow Theorists, both the industrial sector and the transport sector also made new ATHs this week. The dominant trend remains higher.

SPX remains above all its moving averages, all of which are rising. This is the definition of an uptrend. It would take a break of 2620 (blue line) to trigger a head and shoulders pattern whose measured move targets the trading zone created over 6 weeks in October-November (yellow shading). Enlarge any chart by clicking on it.

Friday, December 8, 2017

December Macro Update: Housing and Manufacturing Growth At Multi-Year Highs

SummaryThe macro data from the past month continues to mostly point to positive growth. On balance, the evidence suggests the imminent onset of a recession is unlikely.

The bond market agrees with the macro data. The yield curve has 'inverted' (10 year yields less than 2-year yields) ahead of every recession in the past 40 years (arrows). The lag between inversion and the start of the next recession has been long: at least a year and in several instances as long as 2-3 years. On this basis, the current expansion will last well into 2018 at a minimum. Enlarge any image by clicking on it.

Saturday, December 2, 2017

Weekly Market Summary

Summary:  All of the US equity indices made new all-time highs this week, for the first time since mid-October.  SPX and DJIA have risen 8 months in a row. By some measures, investor sentiment is more bullish now than at any other time in more than a year, driven, apparently, by enthusiasm for tax reform legislation. The current uptrend is extended, and may be getting ready to take a short break, but further gains are likely during the first several months of 2018.

This is the set up as markets enter December, typically the strongest month of the year for equities. As bullish as December tends to be, an intra-month drawdown of 2% has been common, even in recent years.

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For the first time in a month, all US indices - SPX, NYSE, DJIA, COMPQ, NDX and RUT - made new all time highs (ATHs) this week.  The dominant trend remains higher. Enlarge any image by clicking on it.

Tuesday, November 28, 2017

A Cautionary Signal After Today's Strong Gain

Summary:  US indices closed at new all time highs on Tuesday. The gain was so strong that SPX closed 25% above its Bollinger Band width. This is rare. There have been only 6 similar instances since 2003. None marked an exact short-term top in the market, but all preceded a fairly significant drawdown in the week(s) ahead. Risk-reward over this period was very poor.

There are a host of countervailing reasons to expect equities to end the year higher. This is only one data point, and the sample size is small. Nonetheless, a heads up is warranted.

In an addendum, we look at consecutive opens and closes above the upper Bollinger Band (there were 3 in a row this week). The message is the same: when SPY was not breaking out of a base, these instances have often been followed by at least temporary buyer exhaustion.

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Today, SPX, COMPQ, NDX, NYSE, DJIA and RUT all made new all time highs (ATHs).  The dominant trend remains higher. Enlarge any image by clicking on it.

Sunday, November 26, 2017

The Flattening Yield Curve Is Not A Threat to US Equities

Summary:  On its own, a flattening yield curve is not an imminent threat to US equities. Under similar circumstances over the past 40 years, the S&P has continued to rise and a recession has been a year or more in the future. Investors should expect the yield curve to flatten further in the months ahead.

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Investors are concerned about the flattening yield curve. Enlarge any image by clicking on it.