Thoughts for the New Year.
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,
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