Morning Market Thoughts
The futures are up this morning, and it looks like the market is going to continue its impressive move. Steve Mnuchin and Wilbur Ross have been selected to lead the Treasury Department and Commerce Department, respectively. Both bring strong banking experience, which is attractive to investors and traders. Both Mnuchin and Ross also had some good things to say about Fed Chair Janet Yellen, which is a plus because it implicates some stability at the Fed. The market hates uncertainty, and let’s face it — there is more than a bit of uncertainty about exactly what the next administration is going to do. And since Yellen is a perpetual dove, I suspect that investors believe monetary policy will remain accommodative. As new cabinet members are revealed, things become a bit more certain. And that brings eager money into a market that has been largely sideways and choppy since early 2015.Oil is also up around 7% this morning due to reports that OPEC has reached an agreement to cut oil production for the first time in eight years. Energy stocks are jumping.
So we’ve got a bit of a “perfect storm” — in a good way! Remember “The Perfect Storm” movie? When George Clooney was attempting to pilot the fishing boat out of the eye of the storm, at some point it became apparent to him that they were not going to escape. He simply said, “She’s not gonna let us out.” If they’d only been able to break through and get out of the storm, maybe they’d have been able to bring that big load of fish to the market and make a bunch of money. Instead, it didn’t end well.
We’ve got the opposite dynamic going on now. While oil prices are still range bound between $45-$50, this agreement to cut output may be the catalyst for a breakout. We’re not seeing the breakout yet, but a 7% jump in price just might generate enough upside momentum to get oil out of its base. Add to that the high likelihood of a better lending environment for banks and you’ve got the makings of another leg higher in a very mature bull market.
The ideal way to get into the market is when the market has consolidated for a while. The consolidation is a result of profit-taking meeting new buying. Selling isn’t sufficiently aggressive to generate a sell off. Instead, there is just a period where buying interest dries up a bit. When you’ve got this type of “high base”, a breakout really means something. The prior trading range will now be support for any pullback. So the risk of getting into the market is fairly low due to this support.
Well, we don’t have that now. The November rally has caught a lot of traders by surprise, and they’re scrambling to get into the market. Aren’t you? If we just consider the recent 6% move, the market is quite extended. But if we zoom out and assess the market over the past several years, we’ll see that there actually is a “base”. And that base is the “sideways and choppy” market that I mentioned above. Since early 2015, the market has been forming a high base. And this base will serve as support for any pullback. As such, it’s really important to put your money to work in stocks and sectors (i.e., ETFs) that are advancing.
As I mentioned last night, I think the rally is intact and that this little pause we saw over the past couple of days might be all we get. The prospects of lower taxes, more accommodative banking and business regulations, and higher oil prices should be all that’s necessary to get any sidelined traders into the market.
Simply put, stocks will go higher.
See you in the forum.
Dan
(By the way, I’ve received several emails from members re/ my shoulder issues, which I appreciate very much. After seeing two shoulder specialists over the past couple of days, it’s apparent that I do indeed need a total shoulder replacement. I still have some homework to do and plan to consult with a few other surgeons close to where I live before I get it done. But I’m going to tough it out for a couple more months so that I can get the surgery done during the first quarter of 2017.)
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