The Bottom Line
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!
• Short-term stock market breadth has been somewhat weak; however, it looks like it could possibly be in the early stages of turning positive.
Client accounts are fully invested and mainly invested in equity funds, preferred securities funds, and high yield funds. 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.
The S&P 500 (chart below) is above both its 50-day moving average and its 200-day moving average. Both those averages are trending higher and any pullback we have seen in the index this year has been extraordinarily minor.
The RSI Indicator (lower panel) is a momentum indicator and when it consistently exceeds the overbought level of 70 and does not drop below the oversold level of 30, this is bullish. Simply put, if the S&P 500 is continually getting overbought, that means the demand for stocks is high and this is obviously bullish for the market as a whole!
Bias: Long-Term Positive and Short-Term Negative But Improving
Long-term market breadth is positive. Below is a chart of the Cumulative NYSE New Highs – New Lows Indicator. This longer-term breadth indicator has historically done a good job of displaying deteriorating market breadth that has led to major market corrections. As you will notice, it is currently in an uptrend.
Short-term stock market breadth has been weak for about four weeks; however, the stock market has only pulled back a little over 1% peak-to-trough. I am starting to see improvement in my short-term breadth indicators and if they do turn up that would be very bullish for stocks over the coming weeks.
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.
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Craig Thompson, ChFC
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.