Morning Market Thoughts
Not much to say this morning, gang. The market is flat, which is a bit different than the prior few days where stocks opened strong and then tapered off in the afternoon. So I don’t view this flat open as indicating anything other than more reluctance to buy stocks.If you zoom out and look at a chart that goes back to April of 2014, you will see a topping pattern. Actually, it’s tough to miss. Five obvious spikes down to the 1,800’s, followed by returns that have carved out a ceiling that’s getting progressively lower. Less headroom for advances.
In a very “macro”, common sense way, this type of top warrants EXTREME caution in holding stocks over earnings. Think about it. We are just entering earnings season, where the general consensus is that earnings aren’t going to be that impressive. But the technical backdrop is that the market has just rallied 15% in a month. So it’s as if traders are anticipating positive earnings and are getting in before they are released. In that event, we should expect a “sell the news” event. Buy the anticipation, sell the event. Stocks are stretched, and we are just now starting to move into a very critical time.
If earnings are indeed tepid, there will really be no way for stocks to move but lower — if only to work off an overbought condition. So frankly, I think it will take a MAJOR surprise in earnings results and outlooks — I mean the kind of surprise that surprises EVERYBODY — to push the market higher.
My suggested approach is to zoom in on your focus. Just realize that we are in a general environment where gains will be difficult until we first see another correction in the indexes. Hopefully not like the past 5…but at least a correction.
But we have been zooming in on the material and energy stocks, which have been bucking the trend. If we focus only on those stocks that are acting like they are in a bull market, then we are in the right place.
Bottom line: Focus on what you SEE is working; not on what you WISH was working.
Dan
Market Update