Archive for the ‘Stocks - U.S.’ Category

Link To See It Market Post

Wednesday, June 21st, 2017

LINK: How Does 2017 Compare To Stock Market Peaks In 2000 And 2007?.

Will Narrow Framing Cause Many To Miss A Generational Rally In Stocks?

Monday, June 19th, 2017

We Tend To Make The Same Mistakes Over And Over

If you are perplexed by the post-election strength in U.S. stocks, it may be helpful to take a giant step back. From The Wall Street Journal:

Many of the financial mistakes people make are caused by a fundamental shortcoming: They can’t see the big picture. In behavioral economics circles, this is known as “narrow framing”—a tendency to see investments without considering the context of the overall portfolio. Many people are vulnerable to it.

Technology stocks provide an anecdotal example of narrow framing. As shown in the chart of the NASDAQ 100 ETF (QQQ) below, the short-term view has been marked by unsettling volatility.

However, if we look at the NASDAQ from 60,000 feet, we see a much more encouraging picture. The narrow view says “tech stocks have gone up for years and may be in a bubble”. The longer-term view says, “the NASDAQ was able to make it back to the highs made in 2000, and recently broke out of a 20-year period of consolidation.”

The Three Most Important Questions For Investors

This week’s video looks at long-term economic and financial market evidence to address the question “does history support the notion that the world is on the brink or that things tend to gradually get better over time.” The video covers numerous charts to assist in combating the human tendency to focus on narrow timeframes.

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Short-Term Focus Can Be Harmful

With smart phones and computers making balances, quotes, and P/L accessible 24-7, it is easy to fall into narrow framing mode. From The Wall Street Journal:

The easiest way to achieve your long-term goals, and avoid focusing on short-term losses, is to check your portfolio less often. While it’s now possible to get instant updates on the latest swings of the market, this additional information can lead to narrow framing. This is what the best investors do: They seek out the big picture. And then, once they’ve found it, they remember not to look at it too often.

What about earnings and valuations? Both are reasonable areas of concern. While the conclusions may surprise some, a review of historical facts on January 7, 2017 moved those concerns out of showstopper territory.

The Three Most Important Questions For Investors

Friday, June 16th, 2017

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How Concerning Are Predictions Of A Stock Market Crash?

Monday, June 12th, 2017

Forecasting Is Difficult At Best

Typically, several times a year headlines contain predictions about a coming stock market crash. Calendar year 2017 is no exception with recent bearish calls coming from Jim Rogers and David Stockman.

Since markets are an extremely difficult and complex animal, our purpose here is not to criticize anyone, but rather to highlight the “grain of salt” nature of any stock market forecast. The dated headlines below featured similar gloom and doom calls, and yet, global markets remain near all-time highs.

The headlines above appeared on BuisnessInsider.com and MarketWatch.com. It should also be noted that crash probabilities have hit “pay attention” levels a handful of times over the last few years. For example, the market’s risk-reward profile in October 2011 and February 2016 left the door open to a multiple year bear market. In both cases, stocks righted themselves and the hard data began to improve in a meaningful way.

An Extremely Rare Stock Market Shift Recently Occurred

This week’s video covers a rare market shift that has only occurred two other times in the past 28 years. The video also compares 2016-17 to the 1987 crash, dot-com peak, and financial crisis to help us better understand the odds of bad things happening relative to the odds of good things happening. After reviewing present day facts relative to historical facts, you can make your own call.

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Scary Headlines Are Not Uncommon

Given the difficult nature of attempting to predict a complex future, our approach will continue to focus on the facts we have in front of us today, rather than headlines similar to the one below that was published on April 11, 2014. Markets can do anything at anytime, which highlights the need to remain flexible and open to all outcomes, from extremely bullish to extremely bearish.

Could A Multiple-Year Rally Be In The Cards?

Instead of a crash, is a surprising multiple-year rally within the realm of reason? As outlined in detail in a May 30 article, 2016-2017 looks more like a major bottom than a market that is forming a major top.

Market Shift Has Occurred Twice In Last 28 Years

Friday, June 9th, 2017

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Will Small Caps And Mid Caps Continue To Underperform?

Wednesday, June 7th, 2017

Today’s post can be found on See It Market.

Low Volatility And Stock Market Risk

Monday, June 5th, 2017

A Sign Of Complacency?

Markets have experienced very low volatility for the first five months of 2017. What does history tell us about low volatility markets that are also posting new highs?

Typically, Very Good Things Happen

According to a research note by Sam Stovall of CFRA (via Urban Carmel):

“So far, 2017 has seen 17 new all-time closing highs for the S&P 500 and just 10 days where the index moved more than 1 percent in either direction. That kind of higher highs with low volatility always – yes, always – has been positive for the market, according to Sam Stovall, chief investment strategist at CFRA. The previous 17 times that has happened, the market has averaged a 19.4 percent gain, with advances happening 100 percent of the time.”

Sector Says Be Open To Enormous Upside In Stocks

Does it seem like the markets have been extremely resilient in recent months? This week’s video, which features some of the most interesting charts on Wall Street, provides some insight into the market’s long-term potential.

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Big Picture Remains Solid

Trends reveal a lot about the never-ending battle between the conviction to own stocks and the conviction to sell stocks. When the market’s net aggregate opinion flips to “conviction to sell”, trends roll over as they did in 2000 and 2007. All the charts below show the S&P 500’s 100, 200, and 300-day moving averages.

As outlined in detail on May 30, the present day market looks more like the early stages of a new long-term bullish trend rather than the early stages of a long-term bearish trend.

While it is possible the 2017 chart will morph into a more concerning look, the facts we have in hand continue to support a favorable long-term outlook for equities.

Sector: Be Open To Enormous Upside In Stocks

Friday, June 2nd, 2017

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Numerous Charts Support Long-Term Bullish Case

Tuesday, May 30th, 2017

Similarities To Previous Major Market Turns

The chart below shows up/down volume (1998-2017) for the NYSE Composite Stock Index, along with its 50-week moving average (thick blue line). Notice how all-things-being equal, the probability of bad things happening increases when the 50-week moving average is flat or negative (see red arrows below). Conversely, the probability of good things happening increases when the 50-week moving average turns back up in a bullish manner (see green arrows below). The S&P 500 is shown at the bottom of the image below for reference purposes.

Not Much Talk About A Major Bottom

Instead of 2016-17 looking like a major stock market topping process, a strong case can be made 2016-17 looks very similar to a major bottoming process. The charts below compare the breadth-based 50-week moving average in 2003, 2009, and 2016.

You Can’t Compare 2016 To 2003/2009

It is easy to understand how a major stock market bottom can form after a bear market (2003 and 2009). However, it is more difficult to understand how one could have possibly formed in 2016, given the S&P 500 did not hit the 20% bear-market threshold. While the major indexes held up relatively well in late 2015/early 2016, the story was quite a bit different for the average stock. From a January 11, 2016 USA Today story:

There is mounting evidence that the U.S. stock market is being decimated and undermined by a so-called “stealth” bear market…Indeed, the Standard & Poor’s 1500 index – a broad basket of large, mid and small company stocks – shows that the average stock’s distance from its 52-week high is 26.9%, according to stats compiled by Bespoke Investment Group through Friday’s close. “That’s bear market territory!” says Paul Hickey, co-founder of Bespoke Investment Group, the firm that provided USA TODAY with the gloomy price data.

Does 2016-17 Look More Like A Major Top Or A Major Bottom?

This week’s stock market video uses facts to complete check marks in the table below. If you review the evidence with an open mind, the conclusions may be surprising.

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Tech Breaks Long-Term Barrier

The NASDAQ’s long-term chart (1982-2017) also leaves the door open to better than expected outcomes in the coming weeks, months, and years.

Broad Market Has A Constructive Set-Up

The NYSE’s long-term chart below aligns with the volume-based breadth analysis above. The NYSE Composite was unable to clear the orange box below between 1996 and 2015; a break occurred in 2016.

Breadth Aligns With Stocks

The NYSE’s up/down volume indicator has also recently cleared some areas of past resistance. The longer the indicator remains above the orange boxes below, the more meaningful it becomes from a bullish perspective.

Remaining Open To All Outcomes

The facts we have in hand today align with a growth-oriented investment stance. As long as that is the case, our allocations will continue to be heavily tilted toward equity ETFs. If the evidence shifts in a meaningful way, flexibility will allow for prudent adjustments.

2017 Major Top or Major Bottom?

Friday, May 26th, 2017

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