Bull Market

The S&P 500 was up 6.4% YTD through March 3rd, a bit above its average annualized gain of 5.9% since 1926. In other words, 2017 would be a good year if the books were closed today.

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The stock market looks overbought on virtually every technical measure we can think of, but an overbought condition doesn’t always mean the market is vulnerable. To the contrary, we’ve found that “initial” overbought readings—like the one triggered last week on the S&P 500’s 14-Week Relative Strength Index—are generally followed by above-average gains in the intermediate-term (Chart).

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The Major Trend Index stabilized in a moderately bullish range during the past several weeks, yet the Momentum/Breadth/Divergence category is almost the sole carrier of the bullish torch.

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While the sequence of index peaks traced out YTD is not exactly a textbook one, the market’s internal diffusion is comparable to that seen at many major tops, including 2000 and 2007.

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Up front, we need to remind readers that the Major Trend Index is bullish at 1.08, and our tactical funds remain well-exposed to equities with net exposure of 60-61% (versus a range of between 30% minimum up to a maximum of 70%). That being said, we’re focused on the likelihood of a major defensive portfolio move in the near future, which probably comes as no surprise to Green Book readers (...what with us publishing a prepackaged obituary for the bull market just a month ago).

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We remain reluctant stock market bulls, with our disciplines supporting net equity exposure (targeting 55%) that “feels” too high based purely on instinct. We think our stay in the overcrowded bull camp will be short-lived.

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The bull’s 72-month lifespan now rates as the fourth-longest among all 23 DJIA bull markets since 1900, and the cumulative price gain of +179% ranks sixth.

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Mario Draghi will commemorate the global bull market’s sixth anniversary on March 9th with the initiation of a QE bond purchase program of 60 billion euros per month. Our own celebration has been subdued by comparison.

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Stock market Margin Debt enjoyed a brief phase of notoriety when it eclipsed its 2007 high just over a year ago, then it retreated into obscurity. Now it may finally be telling us something.

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Weight of the evidence suggests the bull market is in a broad topping process, likely begun in late-July. The duration, however, may be proportionate to the tremendous five-plus year upswing that preceded it.

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Think the bull market is long in the tooth at almost six years of age? Maybe not.

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Great bull markets begin with numbers but end with narratives. The current bull market began with terrific statistics, but the past two years has given way to story-telling that is unimaginative even by Wall Street standards.

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Based on the historical percentages, the bull market should have a minimum of four to six months of life left. But the market has a way of throwing sand in the gears when you think you’ve begun to understand its internal mechanics.

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The Dow Jones Industrials’ bull market gain of +150% is well ahead of the long-term median (+86%) and average (+134%), and places the 2009-to-date move as the sixth-best all time.

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The post-2009 stock market upswing now qualifies as only the sixth cyclical bull market since 1900 to last five years or more. But only three of the previous five-year-old bulls lived to see a sixth birthday.

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Buying global groups with strong price momentum has been a winning strategy. Will it continue?

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We examine Emerging Markets from both the top-down and bottom-up perspectives as we try to identify where to move and what to expect. We check in on two successful EM thematic group ideas as well.

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Give those who’ve advised investors to “Sell In May” over the years some credit: they’ve never been too specific.

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With “That Time Of Year” approaching and the Major Trend Index not too far above the neutral zone, we review nine factors impacting the stock market from a glass-half-empty perspective.

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