None of our themes have changed.
The breakout of the 18 month trading range in the Dow and S&P was nothing but bullish. We said that based on precedent. Whenever a couple of major indices break out of long ranges, it usually works for a while. But there was something else that was also very bullish and that was the 11 percent cash in mutual funds and pension funds. A breakout combined with that kind of ammo is a great one-two punch. Just remember, as markets go higher, managers that have too much cash feel the breathing down their necks…thus things tend to feed on themselves.
Earnings and sales growth continue to stink. BUT guidance came down so far that we are seeing the “beat the number” game successful. We continue to see a ton of down earnings and sales but as we have always said, “it’s not the news, it’s how the market reacts to the news. The fact is it is bullish when perceived news is bought up.
Lastly, we continue to believe this higher market remains a continuation of the huge, gargantuan, humongous, monolithic and unfathomable easy money policies by just about every player around the globe. We have highlighted for you the 0 percent rates, the printing of (depending on what abacus you are using) over $20 trillion and counting, negative rates and the outright buying up of markets by central banks. We could have never predicted how far these maniacs would raise the bar or should we say lower the bar when it comes to manipulating and rigging of markets. They will never be able to roll this back. They wouldn’t even dare. The bubble continues…with the bond market being the biggest bubble in history…much bigger than the 99 internet bubble.
We have seen nothing but improvement. We have seen many base breakouts. We are now seeing lagging areas turning the corner. We have felt a clear lack of selling. And to add some fuel, we don’t think many believe this is happening. As technicians first, believe it. Price first. Everything else second. Now watching to see if the NYSE, Russell 2000, mid caps and others move above resistance. Odds favor they do.
A few other notes:
Foreign markets remain much weaker than U.S. markets.
Large caps continue to outperform small caps but small caps are coming on.
If oils and financials can go topside, expect more fireworks. These two important areas remain range bound.
Gold/silver remain very bullish but look to be in pullback mode.
Yields have crashed again. We think this is a good part of the reason for better markets. It is no accident that the interest rate sensitive utilities and reits continue to lead.
Shorter-term, pullbacks can happen at any time. Many of our bull/bear stats have turned decidedly bullish (this could be near term bearish) but we think if any pullback occurs, it will be nominal, controlled and rotational at this time.