Happy Monday and welcome back to the game. My wife and I decided to make a quick trip out to Moab, Utah to enjoy a sunny weekend in a truly spectacular place. If you haven’t been, be sure to put it on your bucket list. And for all you testosterone junkies, this is your Mecca as there are more ways to get your thrills in Moab than you can count on two hands.
We avoided the ATV rides, the parachute jumps, the mountain biking (unscheduled dismounts are NOT my friend at my age), the big race through the canyons, etc., and instead did some great hiking in and around Arches, picnicked by the Colorado river, and even swung a golf club.
While my guess is most readers don’t really care to read much more about our weekend adventures, the point is that I didn’t even turn on the computer Saturday and Sunday. Nope, I decided to give my brain a rest and avoid thinking about the markets for a couple days.
Thus, I’m going to let the indicators and market models do most of the talking on this fine Monday. But after reviewing the boards, it does appear that this remains a bull market that may be entering a FOMO stage – as nothing seems to deter the buyers for more than a couple hours these days. Not disappointment on trade. Not the impeachment drama. Not even the weak data that continues to crop up.
As such, anyone looking for a dip to buy has been frustrated.
Sure, there are at least a couple important “gaps” on the chart of the S&P that “ought” to be filled at some point. But therein lies the rub. With the major averages sporting eye-popping numbers for the calendar year (isn’t it funny how everyone seems to have simply forgotten the misery stocks experienced at the end of last year!) the only important game to be played here appears to be getting every dollar invested as fast as you can.
So, do we melt up into the end of the year? Or do we get the much-anticipated pullback that doesn’t seem to want to happen? To be sure, the table is “set” for a counter-trend move. But, without a negative catalyst, it appears that the bulls are planning to just keep on keepin’ on.
Be sure to stay tuned as this is shaping up to be an interesting finish to the year.
Have a great week!
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.
There were no changes to the Primary Cycle board this week. The bottom line here is that with the possible exception of the Global Risk Model, which continues to confirm that all is not right with the world from a global market perspective, my key market models tell us to keep the offense on the field.
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 was some modest movement in two of the components of the Fundamental Factors board this week. The most important is the slight uptick in the inflation model. While the model itself remains in the green zone, I’m of the mind that both stock and bond traders will take notice if inflation pressures start to percolate further. However, the overall message from the fundamentals is investors should stay the course and give the bulls the benefit of any doubt.
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.
With the exception of the Cycle Composite, which points slightly lower this week but then upward thereafter, the Price Trend board remains in great shape. It is also worth noting that our Trade Mode composite is close to changing colors. While you may find it odd that this composite remains in a mean reverting mode based on the state of the S&P 500, keep in mind that some of the broader market indices such as mid-caps and small-caps remain rangebound and well below their old highs. As such, the Trading Mode composite has been unable to budge. But as I have mentioned, assuming the bears do not immediately take control of the game, I expect this composite to soon confirm the upward trend seen in the S&P, Dow, and NASDAQ indices.
The State of Internal Momentum
Next, we analyze the “oomph” behind the current trend via our group of market momentum indicators/models.
The Momentum board remains in good shape overall. While you may note that the Intermediate-Term Breadth Thrust Indicator slipped to neutral this week, it is important to keep in mind that the three Thrust indicators are all oscillators. Thus, as meaningful trends take hold in the market, it is inevitable that these indicators will slip back into the neutral zone. At this stage, as long as the Thrust indicators stay out of the negative zone, the advantage continues to stay with the bulls.
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 message from the Early Warning board remains clear. Although I will continue to argue that we are in the midst of a “good overbought” condition (where the market gets overbought and stays overbought), the board suggests that the table is set for a counter-trend move. In addition, the presence of a couple gaps on the daily chart of the S&P 500 also support the idea that the bulls may be due for a pause in the near-term. But with the number of trading days left on the calendar getting slim, it appears that FOMO (fear of missing out) may have taken hold. As such, my guess is that any/all dips in prices will be bought in the near-term.
Thought For The Day:
Let yourself be silently drawn by the strange pull of what you really love. It will not lead you astray – Rumi
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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