Technically Speaking: FOMO Overrides FOLM

In this past weekend’s missive, I stated:

“The good news is the break above the 61.8% retracement level, as we noted last week, keeps the markets intact (Pathway #1) for now. And, as suggested above, a retest of recent June highs seems very likely. However, Monday will be key to see if we get some follow through from Friday’s close.”

Well, on Monday, the markets did indeed follow through and rose towards a retest of June highs.

 

With the markets now back to a short-term overbought extreme, the June highs may be a challenge for the bulls in the short-term. Also, it is worth noting that since the beginning of this year “gap up” openings for the market have tended to be within a couple of days of a short-term peak. In other words, yesterday’s “gap up” opening was likely a good opportunity to trim positions that have gotten overweight in portfolios. For us, that was technology and discretionary sectors which we have now reduced back to target portfolio allocations.

However, on a positive note, if the bulls can indeed muster a rally above the June highs, and can hold it, it will likely be an easy stretch back to the highs of the year. With the market climbing an advancing trend (higher bottoms and higher highs), our portfolios remain weighted towards equities, although we do remain underweight from target goals. If the “bull market” reasserts itself and shows stronger breadth, then further increases in allocations may be justified.

But that point is not now. Over the last month, the bullish backdrop has become markedly less clear as the list of economic and market concerns persist. This great graphic came from Mark Raepczynski on Friday:

 

Liz Ann Sonders also took a stab at the list of headwinds facing the bulls currently:

“More broadly, at the midpoint of the year, there continue to be both headwinds and tailwinds for the economy and the market. Trade uncertainty clearly falls in the former. As you can see in the graphic below, I have loosely connected many of these, along the lines of an ‘on the one hand…on the other hand…’ analysis.” 

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