New market thoughts from Raymond James’ Jeff Saut Investment Strategy: “That’s More Like It” 03/28/19

“That’s more like it” is what one portfolio manager said to me yesterday. I said, “What do you mean?” He responded, “Well, Wednesday was in keeping with your sense that the market would ‘stall’ the first part of this week and then have a positive ‘energy burst’ late week. Do you still feel that way?” Regrettably, my indicators suggest that the “energy burst” may be slightly delayed since, as I wrote yesterday, “Our monthly indicators still have plenty of internal energy, but in the short run, the stock market’s internal energy, by my pencil, still needs to be rebuilt, despite yesterday’s [Tuesday’s] rally.”
The S&P 500 (SPX/2805.37) lost 0.46% yesterday, but there was no intensity to the selling. Verily, Down Volume was 68% of total Up to Down Volume and Declines were only 54% of total Advancing to Declining Issues. Yesterday’s intraday low by the SPX was 2787.72, which was above last Monday’s intraday low of ~2785. More importantly, the SPX closed once again above the much watched 2800 level. Despite the lack of “selling intensity,” the recent inability of the SPX to maintain its session gains. Regrettably, this still leaves me somewhat non-committal on a near-term trading basis, but has NOTHING to do with my long-term secular bull market thesis.
As market wizard Leon Tuey writes:
For decades, I’ve been advising fund managers that when anyone on the sell side calls, after the initial salutations, ask the caller two questions:
1. When you are talking about the market, are you talking about the DJIA, the S&P, or “the market”?
2. What do you think are the major determinants of the market’s long-term trend?
If the caller cannot answer both questions correctly, don’t deal with them…. Many of the fund managers replied: “Then, I won’t have anybody to talk to.”
In recent sessions, the “noise” on Wall Street is deafening! Everyone is shouting “Inverted Yield Curve” and “Bear Market.” Last night, the Advance-Decline Lines for the NYSE, the SPX, and the NDX closed at record highs. Strange behavior for a bear market. As the A-D Lines usually turn down 3-6 months before the major indices, how can this be a bear market? In early December, because of the market’s grossly oversold condition and ideal sentiment backdrop, investors were advised to re-deploy cash on further weakness and sure enough, in the week of December 17, the LTTS gave a buy signal and the following week, the S&P reached its low, but ended the week higher. Subsequently, I opined that the correction was over and the bull market resumed.
What investors witnessed in December was a climax. How climactic? Have a look at the NYSE 52-week Highs and the NYSE Bullish Percent at the bottom. In December, the NYSE 52-week Highs posted the most climactic reading since February, 2009, one month before the S&P reached its low and four months after “the market” bottomed. The NYSE Bullish Percent also reached the most climactic reading since February, 2009, but during December, it reached a record low during the month. Little wonder the market roared back and in February, all Advance-Decline Lines posted record highs.
Whether the “energy burst” arrives a bit late, or not, is not really all that important, because my work shows little downside risk right here, without a black swan news event, with the path of least resistance to the upside over the next four weeks. And then there was this, “The Global Earnings Revision Ratio ticked up in March, hinting at the beginning of the end of the global earnings downturn.”
This morning, the S&P futures were lower overnight on the Brexit snag but have since come back (S&P 500 futures are +4 as I write). Today should contain the peak intensity of 1Q performance gaming. The usual suspects want to push stocks higher to close out 1Q with a good report card. Barring unexpected negative news, participants will make a concerted effort to boost stocks, especially late in the European and U.S. sessions. A key question: Who has more incentive to mark up their holdings: bond or equity types? If bond holders are aggressive in marking up stuff, it could induce traders to reflexively sell stocks. A slew of Fed officials are scheduled to speak. Yesterday, the WSJ reported, “Fed Officials Push Back on Market’s Rate-Cut Belief.”


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