Friday, December 16, 2016

This Week's Message: The Setup's Good, But There's Always Something...

If I had a nickel for every time somebody asked me what I think the market'll do over the next year, well, I'd be having serious nickels right about now. Sadly, the fact that I'm not typing this on my floating keyboard whilst in my mega Jacuzzi on my mega yacht in the Mediterranean means that, dang!, I just don't know :(! Yeah, you'd think that after 32 years of living this stuff I'd totally know what a few billion people are going to be thinking and doing over the next year and how it'll impact the markets. Oh well, maybe someday....

So, till then, what am I to do? And how am I to answer that question?

To do: My darnedest to accurately assess the condition the market finds itself in. Or, as I like to say, the setup.

The Answer: Explain what I see as the setup. Then explain that my view is based on all of the information I have at my disposal at that very moment, how I interpret that information, how that information is trending, and stress how all market/economic information forever changes (sometimes on a dime) over time. The uncertainty of that last part explains why I suspect it'll be awhile before I'm typing from the tub on my yacht anchored off the Cretan coast.

As for the present economic setup, it's good, in my view. While, as we've discussed herein, there's tons of economic stuff to consider, just for today, we'll keep it short and sweet. Here's a one-year look at Citigroup's economic surprise indexes for the world's major economies:       click charts to enlarge...

That's, on balance, a decent (improving) look.

As for the present stock market setup, it, in my view, is good as well. Here are a few looks at the S&P 500.

The 50 and 200-day moving averages (yellow and blue) are in bullish positions, and sloping in a bullish direction, while the index has burst through what was resistance and, for now, holds above:

The trend in trading volume, on balance, confirms that the bulls have had stronger conviction than the bears of late:

The slopes of two key technical indicators (MACD and RSI [I've touched on these in numerous videos]) confirm the present trend:

Overall breadth (per the advance/decline line) supports the present trend  as well:

Okay, enough with the bullish stuff, anything concerning out there?

Of course, always!

We can talk about good-Trump bad-Trump, but you can go here for that. We can talk about the Fed and higher interest rates, but you can go here for that. Or we can talk about something that is indeed different than it was before the election and why it could brew into a negative if it continues its present trend: It's the fact that investors, both individuals and professionals, are becoming increasingly optimistic. And, as we've discussed here ad nauseam, a bull market tends to last as long as plenty of people are fearing its end.

Here's the American Association of Individual Investors weekly bullish sentiment reading:

And here's the BofA Merrill Lynch Fund Manager Survey's Risk Appetite Indicator. It's at a 13-month high:

Of course a burst of optimism, particularly coming off of a long spell of general pessimism (and after a long period of net capital outflow from stocks), does not, by itself, a bear trend make. However it is something we'll be addressing going forward if it keeps up. For John Templeton knew what he was talking about when he said:
Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.
I'm not nearly smelling euphoria at this point, but I'm always sniffing for it...

Have a wonderful weekend!

No comments:

Post a Comment