Is Sideways The New Down?
It is a given that Ms. Market's mood can change at a moment's notice (or the drop of an algo). But for the time being, it appears that sideways just might be the new down.
Since the BREXIT freak-out ended on June 27, the reality is that stocks have only had a handful of unpleasant days, all of which were reversed in short order. Couple this with the declaration of a fresh bull market, better than expected economic data, and significant improvement in the indicators, and you've got a recipe for higher stock prices - from a big-picture perspective.
Yes, I see the calendar (the cycle composite says things are about to get sloppy into the fall) and I do indeed know that stocks are overbought (the VIX is crashing to lows not seen since mid-2014 on a weekly basis). But the key is to understand that I'm not really talking about the outlook for the next few days here. No, if I look out toward the final one-third of the year and into the first quarter of 2017, I have little choice but to be optimistic at this point in time. Sure, this would appear to be a modestly contrarian view as the chorus from the pouting pundits is that the sky will surely fall any minute now.
But in this business the trick is to (a) remove your emotions, (b) try not to make a "call" on what "should" happen next, (c) check your ego at the door each morning, and (d) try to stay in tune with the "weight of the evidence" from our major market models.
From a technical standpoint, the bears will likely use the summer doldrums to find a reason to attack the near-term line in the sand. Stocks ARE overbought and ripe for a pullback. If our furry friends can break through the first lie, then a test of S&P 2145 would be likely in order.
S&P 500 - Daily
View Larger Image
It is also worth nothing that oil prices are in play here. Analysts I trust believe that the recent correction in oil is likely ending (the news of an informal OPEC meeting next month is helping crude prices here). Should crude rebound from here, it would actually bode well for stock prices in the near-term. So, this remains something to watch.
US Oil Fund (NYSE: USO) - Daily
View Larger Image
Current Market Drivers
We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).
1. The State of Global Central Bank Policies
2. The State of the Earnings Season
3. The State of Oil Prices
4. The State of U.S. Economic Growth
Thought For The Day:
Respect yourself and others will respect you. -Confucius
Modern times demand modern portfolios!
MPD™ (Modern Portfolio Diversification™) goes beyond the usual, failed asset allocation approach
Learn More about using MPD™ to modernize your portfolio!
Here's wishing you green screens and all the best for a great day,
David D. Moenning
Founder: Heritage Capital Research
Chief Investment Officer: Sowell Management Services
Looking for More on the State of the Markets?
The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.
Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.
The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
David D. Moenning is an investment adviser representative of Sowell Management Services, a registered investment advisor. For a complete description of investment risks, fees and services, review the firm brochure (ADV Part 2) which is available by contacting Sowell. Sowell is not registered as a broker-dealer.
Employees and affiliates of Sowell may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Positions may change at any time.
Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.
Advisory services are offered through Sowell Management Services.