• 396 days Will The ECB Continue To Hike Rates?
  • 396 days Forbes: Aramco Remains Largest Company In The Middle East
  • 398 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 798 days Could Crypto Overtake Traditional Investment?
  • 803 days Americans Still Quitting Jobs At Record Pace
  • 805 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 808 days Is The Dollar Too Strong?
  • 808 days Big Tech Disappoints Investors on Earnings Calls
  • 809 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 811 days China Is Quietly Trying To Distance Itself From Russia
  • 811 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 815 days Crypto Investors Won Big In 2021
  • 815 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 816 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 818 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 819 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 822 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 823 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 823 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 825 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

Markets Tentatively Bullish on Economy, Mid-Terms, and Earnings

Last week's financial market action is trying to incorporate future outcomes related to the economy, mid-term elections, and earnings season, which kicks off with Alcoa on October 7th. Currently, a bullish bias exists relative to these outcomes, but there is little conviction behind the bullish bias.

A study of the markets can give us a good indication of the composite forecast of all market participants. The recent advance in the financial markets, and the S&P 500's weekly close above 1,131, offers a mixed bag in terms of the market's outlook. Price, or the value of an index, is always the most important factor to monitor when assessing the conviction of buyers relative to sellers. However, secondary indicators and market volume can help us understand the risks associated with, and the possible sustainability of, any market advance.

The current advance in risk assets should be respected and markets could surprise on the upside. However, the lack of conviction and participation behind the current move puts our assessment into the "cautious and somewhat skeptical" camp. Having exposure to the current move is fine, but diversification and risk control must be part of the equation as well.

As we outlined in Investment Contingency Plans on 9/14/10, we continue to favor a mix of:

  • No double-dip / inflation / money-printing assets: Copper (JJC), silver (SLV), gold (GLD), emerging market stocks (EEM), and materials (IYM) (XLB).
  • Slow economic growth / more conservative assets: Consumer staples (XLP), utilities with a decent dividend (XLU), and broader based growth indexes.
  • Deflation / double-dip assets: While the double-dip scenario remains the lower probability scenario, we must respect it. Having some cash, CDs, dividend-payers, and fixed income exposure can help reduce the risk associated with the holdings above.

The weekly chart of the S&P 500 shows the clear break above 1,131 last week. The fact that we closed above 1,131 on a weekly basis makes the move more significant. The weekly MACD also has been able to maintain a bullish crossover for a few weeks. Bullish indications on a weekly chart are more significant than those on daily charts since they speak more directly to longer-term market trends and the conviction of buyers vs. sellers.

Weekly SP 500 Chart

We use the CCM Bull Market Sustainability Index (BMSI) to monitor the market's overall health. Last week's action moved the BMSI into the low-end of a very attractive range in terms of the S&P 500's historical risk-reward profile (see green area in upper-right portion of the BMSI table below). It is possible we slip back down on the BMSI, so the green risk-reward profiles are not a signal to throw all caution to the wind.

SP 500 Historical Risk-Reward Profile

The monthly chart below of the S&P 500 shows two more bullish indications in the forms of the MACD Histogram (top) and Full Stochastics (bottom). Bullish indications on a monthly chart are more significant than those that appear on weekly or daily charts, especially to investors with longer-term time horizons.

SP 500 Monthly Chart

 

Back to homepage

Leave a comment

Leave a comment