MTI
It’s About Money, Not Profits
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The consensus focus all year has been on the boom in U.S. corporate profits.
Breakout Or Fake-Out?
The S&P 500 has fully erased its January and February losses, but there’s probably a market message in the fact that it took so long to do so.
Change In Market Character
The Major Trend Index fell into its negative zone last week and we trimmed the already below-average net equity exposure in tactical accounts by a few more points, to a current 41-42%.
The Correction That Scared No One
The setback from the January 26th market peak represents the ninth correction of 7% or more since 2009, the most ever recorded during a single cyclical bull market.
Most Likely Just A Correction
So, what happened to the January Barometer—the old analyst’s maxim that a market gain in January portends a gain for the full year?
Market Breadth Still Very Robust
Read this week's Major Trend Index.
A “Good Year” To Start The Year
The S&P 500 was up 6.4% YTD through March 3rd, a bit above its average annualized gain of 5.9% since 1926. In other words, 2017 would be a good year if the books were closed today.
MTI Extends Bullish Streak
The Major Trend Index stabilized in a moderately bullish range during the past several weeks.
Only The Shadow Knows
If the above observation from almost a century ago remains on the mark (as it has for almost a century), then both the cyclical bull market and accompanying economic expansion should remain in force during the next several months.
How Will It All End?
Last month we described ourselves as “long on equities, but light on conviction,” and that description still applies.
Rally Extension?
We’ve boosted equity exposure twice in the past several weeks, fully cognizant that it’s not a “textbook” time to do so.
Valuations: The Correction That Never Was
The correction failed to meaningfully “reset” any long-term valuation measures, hence, we don’t view the current environment as having much investment merit, but rather, primarily speculative appeal.
“Four On The Floor”
Leadership, breadth, and corporate credit all staged intermediate-term breakouts, rising above their respective 40-week moving averages. In this formation, historically, S&P 500 annualized return is +15%.
Sizing Up The Rally
While our MTI became bullish in mid-April, we can’t rule out that the rebound from February lows could be an impressive bear market rally. However, this rally sports impressive technical credentials.
MTI Now Bullish, But Doubts Linger
The Major Trend Index reverted to its bullish zone in the week ended April 15th, following almost ten months in which the work resided in either neutral or negative territory.
Improving Indicator Evidence
Last spring’s “Double Death Cross” in the Dow Transports and Dow Utilities had been partially reversed even before the February low, when the Dow Utilities’ 50-day moving average crossed above its 200-day moving average (thereby issuing a “Golden Cross”). The Dow Transports remain in a bear pattern based on the 50/200-day relationship, but the gap is closing fast.
Stock Market Observations
The stock market rally off the February 11th lows has been powerful enough to lift the Major Trend Index into its Neutral zone (in fact, a high-neutral ratio of 1.04), and therefore certainly deserves some level of respect.
Has The Hook Been Set?
Two months ago, we suggested a short-term bounce in oil might prove to be the fundamental “hook” that would rationalize a bear market rally. We thought a bounce to $45 might do the trick—and oil futures essentially cooperated, reaching $41.90 on March 22nd.
New Month, Old Worries...
While the S&P 500 had erased all but 2% of its August loss as of early December, Small Caps and the “average stock” had recouped only about half their correction losses. Not good.
To Play The Rally, Or Not To Play?
Question: What will you do if the Major Trend Index returns to its bullish zone?
A Bear Till Proven Otherwise
Major Trend Index remains decisively negative at 0.72. The “market action” category is the primary culprit behind this bearish tally, but we’ve also seen the Economic category deteriorate in recent months and would expect this trend to continue. This sequence is typical: Market action leads economic trends (and, we would argue, is a major cause of those trends).
More Trouble Ahead
On High Alert
August is “National Eye Exam Month,” but this is the rare year we can confidently recommend that you skip it.
Stock Market Observations
The U.S. stock market has largely shrugged off the latest round of worries related to China’s stock market collapse, the new down-leg in crude oil, a more hawkish tone in Fed-speak, and sizable second-quarter declines in S&P 500 sales and earnings.
Summer Trouble?
New late-June highs in NASDAQ, Small Caps, and key Financial groups weren’t enough to stem the past few weeks’ slide in the Major Trend Index, which has landed back in its neutral zone (1.01 reading).
A Venerable Monetary Indicator Turned Negative
The smoothed, 26-week rate-of-change in the DJ Corporate Bond Index, a reliable indicator of monetary conditions over many different market and economic cycles, turned negative in mid-June.
Flying By Instruments
The safest highs to sell in the stock market are “lonely” new highs. Fortunately, the April 24th bull market high in the S&P 500 was anything but, as that index enjoyed a varied swath of Large Cap, Small Cap, and foreign company (although the DJIA was a mysterious no-show).
Another Upleg?
The stock market generated enough positive evidence by the second week of February to knock us from our comfortable perch on the fence. We covered a portion of our equity hedges on February 12th, bringing net equity exposure in the Core and Global Funds up to 58% from the 50% level that had prevailed since November.
The Major Trend Index Dropped 0.02 to 0.97 in the Latest Week
The Major Trend Index dropped 0.02 to 0.97 in the latest week, led by a steep drop in the Momentum/Breadth/Divergence category.
Stuck In Neutral?
Extreme market viewpoints get the headlines, but it’s baked into our disciplines that we will (occasionally) be noncommittal.
MTI Rose to 1.04 - High Neutral
The Major Trend Index rose 0.03 to a high neutral reading of 1.04 in the week ended November 21st, driven (unsurprisingly) by a healthy gain in the Momentum/Breadth/Divergence work. The Core and Global Funds remained positioned with net equity exposure of about 50%, but we are prepared to cover some equity hedges if this work strengthens in the weeks ahead.
A Game Of ‘What If?’
Considering the Major Trend improvement, new bull market highs (Nov. 6th) on the S&P 500, DJIA, and DJ Transports, we present a list of talking points we’d use if forced to make a bullish stock market case.
Momentum/Breadth/Divergence Dips But Still Healthy - MTI 1.12
Despite last Friday’s close in the DJIA at cycle highs, the Major Trend Index for the week slipped 0.04 to 1.12.
It Doesn’t Get To Look Any Better
Ben Bernanke seems at peace with his looming retirement from the Fed. He’s certainly more relaxed and confident, and even looks more youthful. So much so, in fact, that Ben’s last appearance had me thinking of a young Tom Cruise - or more specifically, Cruise’s character Pete Mitchell (“Maverick”) in the 1986 film Top Gun. Remember when Maverick froze up during a dogfight with a Soviet MiG fighter, with his crosshairs trained perfectly on it?
Maverick: “Uh, it’s not good. It doesn’t look good.”
The MTI, And More Market Maxims...
Someday in the faraway future, in the midst of a low-volatility, peace-time bull market, we plan to write a Green Book “Of Special Interest” piece on the investment wisdom of Yogi Berra. “Ninety percent of the game is half mental.” Classic. “You can observe a lot by watching.” Words that I live by.
Major Trend Moves To Neutral, But Not All Hope For The Bulls Is Lost
Deteriorating Technicals drove the move to Neutral, but a new positive reading in the Attitudinal category gives some hope to the bulls.
Summer Doldrums?
Give those who’ve advised investors to “Sell In May” over the years some credit: they’ve never been too specific.
Cashing In Some Chips
I’m sure I’m not the only one who’s grown weary of the media’s “Sell In May” obsession in the last several weeks. In my case, I felt this old piece of stock market wisdom would be late by at least two weeks here in 2013. (But, as of early May, I was wrong.)
Ruminations On The Major Trend Index
There are many reasons to think the MTI’s cautionary message should be taken seriously.