With all the hubbub lately of geopolitics doing this that or another thing (especially a certain Huawei executive getting arrested in Canada last week), it’s easy to think that the markets are simply to head lower. The problem is that there are a few signals that suggest we might see a bit more of a rally.
First, we’re in December of the 4th quarter of a Mid-Term Presidential Election Cycle. This is one of the best quarters (and months) to be long stocks… historically speaking. In addition to the US Presidential Cycle, we’re in the middle of the so-called “Best Six Months” to be long equities.
Second, quite a few commodities are hitting oversold conditions and may be due for a bounce. Notably, WTIC has dropped quite a bit this year and, as is often the case, WTIC and the SPX seem to move together. The correlation isn’t perfect but they have a tendency to march in similar fashion. Here’s a five-year chart, the SPX is in purple, the WTIC is shaded in behind it:
Add to that, WTIC has hit oversold on its Weekly Chart, and that usually suggests a bounce will happen soon. However, and this is important, when something hits oversold on the RSI once, it often can retest that low some time in a few months. Keep in mind that oil doesn’t usually make a bottom until the end of January, but we’ve seen oil sell off in December before.
It may be time to play one of the oil ETFs for a quick bounce.
Third, adding to the oversold levels, so has the TNX hit oversold levels, and BOND YIELDS often move in the same fashion as the broader markets:
Fourth, the percentage of stocks trading below their 200DMA on the NYSE sits at about 26%, a level that has been support before. Take a look:
So too with the percentage of stocks below their 50DMA on the NYSE:
That is to say, we’re at levels that have acted as support before. And it’s these types of charts (for which the SPX‘s look similar) that we’re going to watch a little bit more closely to see when these short-term trading opportunities present themselves.
And, fifth and finally, the CPC is hitting up against its previous highs:
So that’s the bullish argument.
On the flip side, there are some concerns, such as UTILITIES outperforming the rest of the market and the DOW TRANSPORTS (TRAN) falling, often n indication that the Big Money is moving into more conservative bets rather than other asset classes. That being the case, if this is the beginning of a bear market, then be not afraid, everything is going to get hit.
All that being considered, one thing looks a bit more clear: sell the rallies. We don’t know about you but there simply isn’t that trust in the markets that was once there. We lost out on FB earlier in the year (despite it being a big stock) and only barely made 1% on AMZN just recently. Furthermore, our leveraged ETFs are getting hit hard and it looks as though our argument for an EMERGING MARKET rally may be failing (if it hasn’t entirely failed already). So, given that, we’re ready to pull the trigger on our sell buttons when we get the chance. We’d rather sit in cash than see how things unfold.
Oh, and maybe we’ll buy a few PUTs.
And did anyone notice that we’ve been writing this blog for over six years now? What happened to our original goal?!