Eight Market Observations…
The
end of the month is here, so below is a fairly comprehensive rundown
of my market observations.
Positive
1) Economy — The economic numbers seem to be coming in
quite good for the most part. Growth is strong. The employment picture is improving,
and consumer sentiment is good. The biggest issues to watch out for seem to
be a sharply declining dollar and the possible negative effects of a burgeoning
trade war.
2) Seasonality — I never put much stock in seasonality, but good years
normally have good Decembers. So if enough people have been nice rather than
naughty, maybe we’ll get a Santa Claus rally.
3) New Highs vs. New Lows — The number of new highs has continued to be
good, but not great. New lows remain scarce. Breadth is certainly not overwhelming,
but is skewed positively.
Neutral
1) Foreign Markets — Many of the markets that have lead
since March have pulled back a bit lately along with the U.S. These would include
many of the Asian markets as well as Eastern Europe and Chile. India and some
select Latin American countries like Brazil have held up a bit better, although
they have been consolidating as well. The markets that seem to be performing
the best and have been near or at new highs as of late are Europe (Austria,
Italy, Belgium, Switzerland, Netherlands, etc) along with some commodities-based
economies like Canada, Australia & South Africa. On the whole, I would say
that global equities are fairing ok. While the direction is not clearly upwards
at this point, I have not noticed the kind of strong sustained selling that
would raise a red flag.
2) UUWNHI (Unofficial, Unscientific, Working/Not Working Hanna Indicator) —
On the short side, for the first time in months, I have noticed a few breakdowns
that have followed through. It is still very slim pickings in this area, though,
and no reason to get excited about the short side just yet. On the long side,
most breakouts have performed rather poorly over the last few weeks. Even those
that were successful and did not return to their pivot points were not as explosive
as you’d like to see. Pullbacks seem to be offering the best long-side
entries lately, as support levels have held up fairly well in many leading stocks.
Demanding entries that would allow for tight stops seems reasonable in this
environment. The long side does still seem a better place to be. If pullback
trades start failing then I’ll really get concerned.
3) My stagnant watch list — The number of long-side stocks making it through
my scans, and the number of new stocks that actually make it to my watch list
has declined quite a bit in the last couple of weeks. My watch list has not
shrunk significantly, but this is more due to lack of breakouts than a strong
supply of new candidates. This really does not provide a strong case one way
or the other at this point, but bears watching. An expanding list of candidates
is always a good thing. A shrinking list is bad.
4) Accumulation/Distribution — Some volume did come in to the market with
the rally on Monday. Other than that, the market has been mostly drifting on
lower volume. Institutions has not seemed to have much conviction either way
as of late, and so there has been little evidence of either accumulation or
distribution.
Negative
1) Sentiment — It seems as though I can pretty much cut
and paste my comments about sentiment each month as nothing ever seems to change
here. As a matter of fact, here’s what I said last month…â€Sentiment
indicators are signaling that everyone is overly bullish. Frankly, I’m
having a hard time remembering the last time readings weren’t “overly
bullishâ€. …While sentiment is certainly not helping the market advance,
it doesn’t appear to be have been a major hindrance thus far.†Still
sounds about right to me.
The market has basically moved sideways (with a slight dip)
for the last month. This type of consolidation is necessary in order for the
market to be able to stair-step higher. A larger correction could happen at
any time, and there is a chance it has already begun. The market is not nearly
as strong right now as it was at the beginning of this rally. Caution is warranted,
but I don’t think you want to paralyze yourself with fear. I’m continuing
to favor the long side until I see more convincing evidence that a deeper correction
is underway.
Happy Thanksgiving, and don’t forget to wear your loose
pants tomorrow. It makes it much easier to fit more turkey in your stomach with
loose pants.
Rob Hanna
robhanna@rcn.com