Last weekend, we wrote to you about two important days that led us to believe another good low was in but this time a move off the lows could be better than the last time. We simply saw the market have another strong reversal day on Thursday May 3rd followed by a strong day on Friday May 4th. This all occurred in and around longer term support telling us it was important. But this past week’s move surpassed even what we thought as major indices broke above not only short-term resistance but many of the majors moved above the highs of mid-April.
Markets are short-term stretched, extended and overbought but that in no way means they have to pull back. Big money is big money and momentum is momentum and we never argue with it. If markets decide to pull back, at this point we expect it to be controlled and rotational with no chance of revisiting the lows at this juncture. The move last week was that good.
We want to add one area that has been dead may have been woken up, that being HEALTHCARE and BIOTECH as words out of the president were not as harsh as expected on the industry. OILS/ENERGY remain the strongest area but are very extended.
We don’t usually write about what is driving prices higher. We mostly care about price but we do have some thoughts.
EARNINGS have been very strong. We do believe it cannot get much better but strong is strong.
PEACE is meaningful. Regardless of what you think of the President, this North Korea stuff is important and meaningful, especially to that area of the world. It is always bullish when a president can show strength that leads to good things. Of course, the jury is till out on the outcome but all evidence in so far is that this is for real.
We have not been worried about INTEREST RATES like others have. Rates remain very low. The fed remains very easy. Yes, 1.5% is easy and if you don’t think that is easy, both Europe and Japan are still negative and are still printing money…and frankly, we think they will be that way infinitum as they believe they are heroes.
“WE’RE RAISING TAXES WHEN WE WIN!” Yup, socialist Pelosi said that about the mid-term elections. We suspect they are reading their own polls incorrectly as this is a losing proposition. There is no way the Dems get the senate as they have 26 up for grabs while the other side only has only 9 but we are told the house is up for grabs. Just keep telling the country that taxes will go back up, companies would lose the benefit of the cuts and potentially stop all the good things with bonuses, investments, raises, lowering of utility rates and a bunch of other stuff…and watch the house stay with the other side. We suspect Madam Pelosi just does not get it and refuses to try.
What could derail further market gains?
OIL PRICES. It is said every 10 cents hike in gas prices for year takes $10 billion out of the hands of the consumer. That’s a lot of cake. Let’s just say prices at the pump are up a lot more than 10 cents.
MUELLER. Need we say more. Quite the wild card. Will this man have the grapefruits to announce something close to the election?
THE DEBT BOMB. We won’t bore you with the numbers in this report but we will not stop trying to help change the trajectory of something that is unsustainable. Just think Kilauea when the deficit decides to shoot the middle finger back at all the politicians that had a hand in creating this blob. Unfortunately, they will all probably be gone at that time either lobbying or working for companies that donated to them (paid them off) throughout the years.