One recent search on Google or Yahoo Finance will result in numerous opinions on the direction of the market ranging from “Sell the house, sell the car, sell the kids!” to “there are bullish signs not seen in the last 40 years”. Who do you believe? We’ve always espoused long-term, well diversified portfolios for long-term investing. The general media loves to create hysteria and drama for investors to raise their ratings. The two worst enemies of every investor are the emotions of greed and fear. Making a decision based on either one will result in bad behavior and most likely poor results.
“The S&P 500 (SPX/2173.60), after breaking out to the upside of a reverse head-and-shoulders. Bottoming formation (Chart 1), has traded to new all-time highs. In the process it has traced out a bullish “flag” formation in the charts. Counting the number of sessions in said flag, it tallies to 12 sessions within less than a 1% trading range. Ladies and gents, that hasn’t happened in 45 years and it is bullish. Not to be outdone, the NASDAQ 100 (NDX/4730.23) bettered its 2000 all-time closing high of 4719.05 last week. For the month of July the tech-heavy NDX was up 7.15%, while the SPX was better by 3.65%.
On the earnings front, hereto as surmised, earnings are coming in better than the “lowered bar” expectations. Indeed, with more than 1000 companies reporting, 67% have beaten their consensus estimates and 58.3% have exceeded revenue expectations. Meanwhile, crude oil is down ~19.5% from its early June high and is resting slightly above its 200-day moving average, while the U.S. Dollar Index took a header last week. So what do we do now?
Well, the NYSE McClellan Oscillator has worked off its overbought condition and by my way of measuring the stock market internal energy, the energy level has recovered to a full charge. So while many will try to argue with the message of the market, the message is clearly bullish. As one emailer wrote last week, “In this case [the market’s direction] is up with a target for the S&P 500 between 2335 and 2672.”
The call for this week: Years ago award-winning strategist Stan Salvigsen (of C.J. Lawrence, then Merrill Lynch, and finally Comstock Partners) wrote some of the best strategy reports ever penned on the Street of Dreams. One of them in 1982 was titled “Surf’s Up” where he showed a picture of hundreds of surfers standing on the beach in Hawaii watching 40 foot waves roll in, yet only a few were brave enough to surf them. Stan’s tag line was, “If you want to catch a wave you need to grab a board and get in the water!” The analogy was that although you are afraid, you need to buy stocks. At the time investors could get a 20% return in a money market fund, so there was little interest is equities. Verily, the stock market had decoupled from the fundamentals with the SPX trading below book value with a dividend yield of roughly 7%, ignoring improving geopolitics, the improving economy, etc. The same thing happened in 1997 with astronomical equity valuations that stayed that way for over three years. The equity markets are doing it again here. You can either take that as “a few years from now we are going to be in a bear market,” or that the stock market is “telling” us things are going to get better.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. The foregoing information has been obtained from sources considered to be reliable, but we do not
guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Thomas Fleishel and not necessarily those of Raymond James.
The U.S. Dollar Index (USDX, DXY) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors.