I awoke to learn that there is yet another early-season snowstorm barreling its way toward Denver this afternoon. There is talk of a foot of snow, blizzard conditions and road closures into Tuesday afternoon. As such, our plans to “take Thanksgiving on the road” to be with our daughter, son-in-law, and grandson in St. Louis have been moved up and I’m told we need to get out of Dodge this morning. So, while I’d like nothing more than to do a deep-dive into the pros and cons of the current state of the stock market here, I’m going to have to type and run.
Before I grab the suitcase, I’d like to say that from my seat, the question of the day is if the bulls can simply keep on keepin’ on into the end of the year.
Even a cursory glance at the chart of the S&P 500 shows that stocks are in a solid uptrend. CNBC just informed viewers that November is shaping up to be the best month since June. And with the market sporting the best year-to-date returns in five years, folks are likely feeling pretty good going into the holiday season – which has historically been kind to stock market investors.
But (you knew that was coming, right?)… Any trader worth their salt is likely aware of the fact that stocks are now overbought from just about any timeframe you might care to use. In addition, market sentiment is quickly reaching “extreme” levels to the upside. Now toss in the December 15th deadline for another round of tariffs, and it is fairly easy to argue that a pullback, a counter-trend move, or at the very least, a pause is in order in the near-term.
Yet if I’ve learned anything in this business over the past 32 years, it is that Ms. Market really enjoys frustrating the masses. It seems the more “obvious” the next move looks to be, the less likely it can become. Especially, when the time left on the calendar for managers to improve their relative performance for the year starts to grow short.
So, while I can and do argue below that a pause/pullback/correction/sloppy period wouldn’t be surprising in here somewhere, I’ve also seen enough “melt ups” in my day to recognize that Santa may have shown up early this year – and might even stick around a while. Thus, my current plan is to (a) recognize that the trend is my friend, (b) be ready to buy a dip, and (c) give the bulls the benefit of any doubt here.
But right now, I’m told that I’ve got to pack up my laptop and get a move on. However, before I commence packing, I’d like to wish everyone a wonderful Thanksgiving holiday!
Weekly Market Model Review
Each week we do a disciplined, deep dive into our key market indicators and models. The overall goal of this exercise is to (a) remove emotion from the investment process, (b) stay “in tune” with the primary market cycles, and (c) remain cognizant of the risk/reward environment.
The Major Market Models
We start with six of our favorite long-term market models. These models are designed to help determine the “state” of the overall market. Put another way, these models indicate which team is in control of the primary trend.
Once again, there were no changes to the Primary Cycle board. From my seat, this group of indicators continues to remind us that while a pause in the action in the near-term wouldn’t be surprising, the bulls remain in control of the ball.
The State of the Fundamental Backdrop
Next, we review the market’s fundamental factors in the areas of interest rates, the economy, inflation, and valuations.
There were also no changes to Fundamental Factors board this week. The takeaway is that while valuations aren’t cheap and earnings aren’t exactly robust, the bulls can take solace in the fact that the Fed is friendly, inflation remains low and the economy appears to be muddling along. This combination should give the edge to the bulls from a big-picture perspective.
The State of the Trend
Next, we review the state of the current trend. This board of indicators is designed to tell us about the overall health of the current market trends.
The good news is that our indicators designed to tell us whether the market is trending efficiently or stuck in a mean reversion mode finally flipped to green this past week. And from an historical perspective, the calendar looks to be largely favorable into the end of the year. However, it is also clear that the bulls are looking a little tired and that stocks remain susceptible to headline risk – especially in the area of trade. So, while the trend appears to be our friend at this time, the state of the trade deal and the early warning board suggests that things could easily become sloppy in the near-term.
The State of Internal Momentum
Next, we analyze the “oomph” behind the current trend via our group of market momentum indicators/models.
Although the Momentum board remains in pretty good shape overall, it is worth noting that some weakness is starting to creep into several of the component indicators. For me, this suggests that the market is experiencing some internal rotation and that the bears might have a shot at a counter-trend move here.
Early Warning Signals
Once we have identified the current environment, the state of the trend, and the degree of momentum behind the move, we review the potential for a counter-trend move to begin. This batch of indicators is designed to suggest when the table is set for the trend to “go the other way.”
The Early Warning board continues to indicate that the table is now nicely set for the bears to enjoy a few days/weeks in the sun. In other words, a counter-trend move would not be surprising given the sentiment model readings and the overbought condition. The good news for the bulls is that so far at least, our furry friends in the bear camp have been unable to get anything going. However, with the December 15th deadline looming on another round of tariffs, some exploration to the downside wouldn’t be terribly surprising.
Thought For The Day:
Hope is like the sun, which, as we journey toward it, casts a shadow of our burden behind us. -Samuel Smiles
All the best, David D. Moenning Investment Strategist
At the time of publication, Mr. Moenning and/or Redwood Wealth Management, LLC held long positions in the following securities mentioned: None
Note that positions may change at any time.
NOT INVESTMENT ADVICE. The opinions and forecasts expressed herein are those of Mr. David Moenning and Redwood Wealth and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as investment recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.
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