New Bull Market Highs in 2019??

Markets Surge on Various “Optimisms”

News that a tentative Budget Deal was reached hit the tape Monday evening and sent overseas markets higher.  By the time the closing bell rang in New York yesterday, the Dow Industrials (Dow) gained a cool 373 points.

In a BULL Market, EVERYTHING is “GOOD” news.  Markets rally when the Government shuts down and then more when its averted.  Bad news is Good news.  Good news is Good news.  No Trade Deal?  No Problem!  The market is OPTIMISTIC that a trade deal will be made and soon.

Most of all, investors are OPTIMISTIC about the Federal Reserve and Chairman Jerome Powell.  The Fed has sent the crystal clear message, it will NOT stand idly by as markets fall.  Risk seeking has been given the “Green Light” by a Fed that will step in and save you from your mistakes.   BUY the DIP!

A slide show of the various key stock market indexes is below.

A few key takeaways are the following:

  1.  Each of the Indexes has almost retraced the entire December loss and sit just below key Resistance.  The indexes will turn outright BULLISH if this resistance can be overcome.
  2. The indexes have gone higher for 8 STRAIGHT WEEKS.  If an OVERDUE Market Pullback occurs, the indexes have key Support which should contain any move back down.
  3. If equity markets trade down to Support and THEN break Resistance, the indexes will have completed very BULLISH ROUNDED Bottom reversal patterns and would likely trade to NEW ALL TIME HIGHS.

But Markets Are Way Overdue For A Sharp Pullback at any Time

The “optimism” of market participants may have gone a bit too far and too fast.  After a very brief “scare” that the economy and earnings were headed much lower, investors appear to have completely dismissed the mere notion of RISK.  After all, the job of managing risk is now the responsibility of the Federal Reserve.

The “Shutdown” is a NON EVENT.  It NEVER WAS an event.  Our recent analysis of Government Shutdowns, US style, reveals just how immaterial they are.  “Surviving the Government Shutdown “Crisis”. (https://markonomics101.com/2019/01/13/surviving-the-government-shutdown-crisis/).

The aversion of another “Crisis” is as relevant to equities as the weather.  Both are temporary and fleeting.

Nonetheless, the set-up is PERFECT for at least a short term market top.  The key indexes, as illustrated above, are all now within 10% of their September, 2018 highs.  As a result, investor sentiment has turned frothy, greedy and complacent.  In some respects, the new BULL MARKET is OBVIOUS.  So much so, that it looks like one of Mr. Market’s carefully laid out traps.

The nuances and importance of Investor Psychology is described in more detail here:  “The Psychology Of Investing”. (https://markonomics101.com/2018/10/08/the-psychology-of-investing/).

More evidence of the rapid shift to GREED from FEAR is revealed in the recent survey from American Association of Individual Investors.  For the most recent survey as of last week, 40% of investors were BULLS while only 23% were BEARS.  Only two weeks ago, these ratios were roughly the reverse.

Major Exporting Countries Turning Bullish

The economy and prospects for earnings are relegated to irrelevant status, but only for the time being.  A very positive sign is that World Stock Markets, especially CHINA, are showing signs of life after more than a year of decline.  The Slide Show Below of the MAJOR EXPORTING Countries has some interesting takeaways:

  1. Each of these stock markets has led on the downside as a result of the perception of a slowing Global Economy.  Major exporters such as China, South Korea, Hong Kong and Germany have been especially weak with talk of escalating “Trade Wars”.
  2. All of these markets appear to be tracing out the same type of ROUNDED Bottom reversal pattern evident in so many US Stocks and Sectors.  Some examples of this Pattern in key Sectors and Stocks can be found here: “Has The BEAR Market Been Knocked Out?”. (https://markonomics101.com/2019/02/05/has-the-bear-market-been-knocked-out/).

 

 

More Rounded Bottom reversal Patterns among the VERY key Semiconductor companies were described here: “Chipmaker Poised To Lead Nasdaq Higher”. (https://markonomics101.com/2019/02/06/chipmakers-poised-to-lead-nasdaq-higher-chart-of-the-day-13/).

Earnings Estimates Continue To Fall

 

Fundamentals may NOT matter for the time being, but ultimately they will.  The chart on the left shows the consistent and steady REDUCTION in earnings estimates for 2019.  (https://www.zerohedge.com/s3/files/inline-images/earnings-1_0.jpg?itok=Kd9eC3XV).

Ironically, most companies reporting 1st Quarter earnings have “beaten” estimates.  But, as is obvious, the “Bar” has moved quite a bit lower.  Bad News is GOOD News!

The extraordinary nature of the last few months has largely diminished the value of currently reported financial information.   Earnings shortfalls are blamed on: tariffs, the prospect of tariffs, China, global economic slowing, the Federal Reserve’s tightening cycle and even the “Shutdown Crisis”. Since each of these factors are thought to be temporary, investors appear to be looking “across the valley” to when normal conditions return.

Opportunities Are Abundant, But Timing Not Quite Optimal

The market is rising within an information vacuum.  NO News is GOOD News, too!

These market conditions will not last.  At some point, fundamentals will begin to matter again.  For now, the BEST information is that which is provided by the Markets themselves in the various price charts.

While we will cover these in more detail, the strengthening in market internals is substantial.  Other markets CONFIRMING the BULL in equities are the following:

  1. The Dow Jones Transportation Index has made a series of new higher highs confirming those in the Industrials.  As a result, the “Dow Theory” Sell Signal is nullified and replaced by a Dow Theory Buy Signal.  A more detailed and fuller discussion of Dow Theory can be found here:   “Are Transportation Stocks Forecasting An Economic Train Wreck?”. (https://markonomics101.com/2018/12/17/chart-of-the-day-4-are-transportation-stocks-forecasting-an-economic-train-wreck/).
  2. Junk or “High Yield” Bond funds have ALREADY traded to NEW All-Time HIGHS.  This would suggest that the corporate credit fears which plagued the market, were nothing more than a BAD Scare, thanks to Fed Chairman Jerome Powell.  See “Collapsing Financials Lead Stock Markets Lower”.  (https://markonomics101.com/2018/12/08/collapsing-financials-lead-stock-markets-lower/).
  3. New 52 week Highs, which had been disappointingly low, are now surging as the new Market leadership asserts itself.  Several Dow Jones Industrials components including Boeing, Procter and Gamble, Coca Cola and Nike have either made NEW ALL TIME Highs or are within a percent or so.

There are many issues forming very BULLISH chart patterns.  Some of the more interesting names revealed recently can be found here:  (https://markonomics101.com/2019/02/05/has-the-bear-market-been-knocked-out/) and (https://markonomics101.com/2019/02/06/chipmakers-poised-to-lead-nasdaq-higher-chart-of-the-day-13/).

More trading ideas will be presented over the next several days.  We will look for the Market Pullback as an opportunity to potentially enter low risk-high opportunity situations.

Of course, no investment is better than information.  That’s our job.

Be Informed, Not Misled!

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