Market and Meaning is my weekly update on market movements and their meaning for you as an investor. Market and Meaning is normally reserved for premium subscribers but is currently being offered for free to all our readers. As always, everything here represents my personal views and not official recommendations or advice, please do your own due diligence and come to your own conclusions.
Market and Meaning is broken up into four parts:
Global News and Investing
Market Outlook
Portfolio Updates
Gold and Silver
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MARKET VIBES
“If you think the market is too high, wait until you see it twenty years from now.” – Nick Murray
Lots of things are happening right now that are causing me some investing stress. I’m caught between a desire to buy into some great companies that could very likely see an end of year rally and my concern that we are still very due a 10-20% correction, IMO.
Let’s go look at some arguments as to what is likely coming in the next few months.
Kirk Spano thinks we are very close to the end of the rally, maybe 7th inning or potentially even already in the 9th. In this thinking, a notable correction would likely come sometime next spring.
Bret Jensen, as mentioned last week, sees a stock rally into year-end, then a high likelihood of a correction in early 2015.
Eric Parnell has been raising the caution flag for months with articles highlighting a world full of bearish signals in the markets and elsewhere. In fact, I want to quote him here:
“When taking a closer look at today’s market, it may actually be prudent to take a more cautious and selective approach in general at this stage of the bull market. One example among many to this point is the trend in NYSE stocks that are trading above their 200-day moving average at present. Back in the beginning of July when the S&P 500 Index was first threatening the 2000 mark, nearly 80% of all stocks on the NYSE were trading above their 200-day moving average. By the time the S&P 500 Index was setting new highs above 2000 in early to mid September, the percentage of stocks trading above their 200-day moving average was falling below 70%. And following the remarkable rally since mid October that has pushed the S&P 500 Index to new all-time highs over 2030, only 57% of stocks to date are trading above their 200-day moving average. This is not a promising trend, as it indicates fewer and fewer stocks are driving the market to new highs.”
Cody Willard sees a good possibility of a strong year-end as many money managers are behind their benchmarks and have a lot of catch up to do as the year wraps up.
Historically, we are entering the best time of year for stocks, “When the Best 6 Months and the 3rd Year of the Presidential Cycle have been active at the same time, the results since 1960 have been outstanding.” Check out the article for more.
As far as non-economic concerns go, I don’t see Ebola causing any more panic and likewise don’t think ISIS is an immediate threat. China poses a longer-term concern, but the biggest red flag is an aggressive Russia.
Regarding economic matters, I think an economic or currency failure in Japan is the highest risk followed by outright deflation in Europe. Credit bubbles in China need to be watched, but I tend to think there is enough slack through savings rates and/or government intervention to prevent anything too terrible from happening.
My assessment is that Russia and Japan are the biggest points of concern, but I don’t see either having a major impact on the markets in the near-term. Keep in mind, there are no guarantees there and the nature of dramatic catalysts are that they are typically unexpected.
Based upon all of this, I think patience is our friend and keeping a healthy cash position is a very wise thing. I suppose you could chalk me up as a cautious bull.
I still see us avoiding another big crash for a few more years.
A few articles worth a look:
OPEC’s World Oil Outlook And Pivot To Asia
This is a major world shift as the U.S. moves toward the possibility of energy independence and Asia is poised to become the new benefactor of OPEC and Saudi Arabia.
Investment Strategy Outlook
Summary: “For stocks overall, and for small-caps relative to large-caps, the final two months of 2014 see seasonal tendencies shifting from headwind to tailwind. Stocks typically celebrate the passage of the mid-term elections regardless of the outcome. This could be the fuel needed to help stocks get back in gear and to provide impetus for expected small-cap leadership. Given the bounce off of the bottom seen already, and the elevated risk of a re-test of support levels, we have not shifted the seasonal pattern to bullish, keeping it instead at neutral for now. As we pass further into the fourth quarter, or see evidence of a successful re-test, we may look to upgrade our view on seasonals. The seasonal tailwind that emerges this quarter persists into the first half of 2015.”
Noteworthy from last week:
I will close with this nifty chart from Wall St. Cheat Sheet. Personally, I think we’re somewhere on the verge of the belief phase. Thrill and Euphoria phases are still to come. That said, something crazy like a financial collapse in Japan could change all that. Let’s keep our eyes open.
For an update on specific moves, see Portfolio Update (linked at the top).
QUOTES FOR CONSIDERATION
“I believe in precious metals, farmland, agricultural commodities, and water resources in the longer-run, but I wouldn’t want to buy until tighter monetary policies are implemented (because it could lead to further downside for hard assets). I’m mostly in cash right now, but have no problem with trading.” – Jesse Colombo
“My outlook is very bleak for equity markets in 2016 and beyond. I think we will see the mother of all stock market crashes. It is no longer a question of “if” but “when”. I am not looking for any arguments from anyone concerning my outlook. It is what I see and believe. In the end, time will tell who is correct. Gold, not digital form, Vacant land, Cash are all good investments to hold but need to be actively managed.” – Richard Gobel
“So, relevant to my clients, readers and Scutify, how to play what is likely a crash scenario in the next few years? I think energy, biotech and retail are the winter winners. After that, who knows. Cash in waiting for downward momentum to kick-in I think. Hopefully we get a good warning again like last time (Bear Stearns fund collapse). What will be the warning this time? Majority of hedge funds sucking?” – Kirk Spano
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Disclosure: I have no positions in any company mentioned.
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