General Stock Market Commentary - Saturday, August 8
The Short-Term Trend
A short-term uptrend may have started Tuesday, August 4. The indicators are mixed, so I am uncertain, but it already looks like the new trend is weakening.
Also, I don't like the way this index never moved back to the top of the range. That has been a warning signal in the past, so I would say that this chart is suggesting the broad market is weakening. And this makes sense to me as we head into the weak late summer months combined with election season in full-focus.
Then again, there are two markets at the moment. One for growth, and the other for cyclicals, and I believe this means that a broad-market indicator like the PMO index is thrown off its game. So, like I said, I'm uncertain.
I have a number of charts that I was planning to show, but I don't think they are telling me what I want to know right now. Basically, what I want to know is, should I be deploying cash into the market as it rises, or trimming positions to raise cash in advance of the next broad price decline?
I said a few weeks back that if I was having trouble navigating this market, then my fallback plan was to follow the advice from The Big Picture column in Investors Business Daily. Here is today's after-market comment.
"A key part in gauging stock market health is paying attention to the price action in leading growth stocks. In this vein, Friday's session was disconcerting."
This means that in the short-term, it is time to get a bit cautious, trim positions, and raise cash levels. That's what I'll be doing next week.
Longer-Term Outlook
Money supply growth has been critical in helping the economy and the stock market survive the crisis. At the moment, growth is slowing, so it shouldn't be too surprising to see the stock market a bit wobbly.
What I don't know is whether it is even possible for the government to continue to flood the economy with funds after such a sharp rise. And even if they can, how effective will it continue to be?
The recent strength in the price of gold and gold miners is correlated to the money supply growth. Below is a chart that overlays the M2 rate-of-change with the price of GDX. My accounts have a lot of miners at the moment, and after looking at this chart, I am thinking perhaps too many.
Here is a chart with some good news. The ECRI index has continued to move higher, and it is now just below the negative-five-level where I think the economy transitions from recession to expansion.
If the ECRI pops up again next week, it means that I can start getting just a bit more confident in the longer-term prospects for the stock market, and I can lengthen the holding period for stocks by giving them just a bit more room to move up and down.
What I really mean is, with a strong ECRI index, I can be more confident buying the short-term dips.
Outlook Summary
- The medium-term trend is uncertain.
- The short-term trend is uncertain.
- The economy is in recession as of March 28.
- Contrarian Sentiment is uncertain.
- The medium-term trend for Treasury bonds is up as of January 25 (prices higher, yields lower) .
Disclaimer: I am not a registered investment adviser. My comments above reflect my view of the market, and what I am doing with my accounts. The analysis is not a recommendation to buy, ...
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