Thoughts for the New Year.
Summary
With the exception of Friday’s selling, price action on all of the major indices remain above the 20D.
Breadth is still positive.
Institutional sentiment (TICK cumulative) is moving sideways suggesting either distribution or rotation. With chemicals, materials, commodities, some industrials and energy stocks all exhibiting relative strength, one could surmise we are seeing rotation.
Junk bonds (JNK) are above the 50ma nearing 52 week highs again; so is High Yield Corporate (HYG). Both are “risk on” bullish for equities if they remain strong.
Sales and earnings, the driver of stock prices is more bullish than bearish, with more than 80% of S&P500 companies beating estimates.
USD is trending lower. This is bullish for multi-national companies.
With the tax bill reform becoming law, companies become 20% more profitable and analysts must rework their estimates to reflect same.
Global economies are in-sync.
We noted where the 5% drawdown would take us on the SPY (weekend video). I find that highly unlikely for the above reasons; still, we could see some consolidation. Remember, a consolidation comes in two forms a pullback or a flag (time). Right now we have the latter.
Just because we are at all time highs does not automatically dictate a pullback. So many investors are afraid of entering, as we saw over the past few weeks with capital outflows. Therefore, if the markets start pushing higher there is plenty of capital that will flow back into equities.
Watch List for the Week
Happy New Year,
Vinny
Disclaimer: Do your Own Research
Our content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on our Website and wish to rely upon, whether for the purpose of making an investment decision or otherwise.
Investment Warnings
We would like to draw your attention to the following important investment warnings. The value of shares and investments and the income derived from them can go down as well as up; Investors may not get back the amount they invested – losing one’s shirt is a real risk; past performance is not a guide to future performance.