The Bottom Line
Bias:
Positive for Stocks.
• Long-term, stocks are in an uptrend and we are in a bull market.
• When the S&P 500 is hitting all-time highs, international markets are advancing strongly, and market breadth is positive – there is no other way to view the market other than positive!
• Stock market breadth is positive and confirming the strength we are seeing in the stock market. Market internals continue to suggest higher stock market prices.
Client Update
I have viewed market risk as low for most of this year, thus our accounts have had high stock market exposure and any changes that I made have been minor. Our accounts have about 50% – 70% allocated to stock funds.
I did sell our Preferred Securities Funds last week, not because they were falling, but because their performance had leveled off. This gives us some cash to redeploy into better performing asset classes.
Market Technicals
Sector rotation is the hallmark of a bull market. When one sector gets extended and falls, another one advances higher. We have seen this happen consistently since the market bottom in February 2016.
Last week both the Industrial and Transportation sector advanced strongly to new highs, while the previous market leader – Technology, fell. In addition, growth stocks which had been outperforming value stocks started to under-perform while value stocks advanced sharply. This continuing sector rotation that is occurring along with major market indexes hitting new highs is absolutely Bullish!
One of the oldest technical analysis indicators is Dow Theory. The theory centers around identifying the trend of the Dow Jones Industrial Average and the Dow Jones Transportation Average. When both those averages are trending in the same direction and they are both hitting new highs, it is confirmation that the broader market is strong. The rational for this is that the Transportation Index is much more dependent on the economic environment than the average stock and will likely foreshadow economic growth.
That fact that both the Dow Jones Industrial Average and the Transportation Index hit new highs is Bullish and suggests that over the coming week’s odds favor higher stock market prices.
Stock Market Breadth
Bias: Positive
As I mentioned in last week’s newsletter, short-term breadth had turned positive and was suggesting higher stock market prices over the short-term which is exactly what happened over the past week.
Stock market breadth is positive and confirming broad stock market strength.
Long-term, the weight of the evidence continues to be bullish for stocks. At some point, this will change and when it does, I will have no problem flipping to a bearish bias and reallocating client accounts to a more defensive posture. However, market technicals continue to signal that we are in a bull market and thus we should be invested in stocks aggressively.
Email me to schedule your free, no obligation retirement account allocation review.
Craig Thompson, ChFC
Email: [email protected]
Phone: 619-709-0066
Asset Solutions Advisory Services, Inc. is a Fee-Only Registered Investment Advisor specializing in helping the needs of retirees, those nearing retirement, and other investors with similar investment goals.
We are an “active” money manager that looks to generate steady long-term returns, while protecting clients from large losses during major market corrections.
Asset Solutions is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.