Inside The Stock Market ...trends, cross-currents, and outlook

One of the more impressive feats that bullish pundits have pulled off is their successful portrayal of themselves as lonely and misunderstand contrarians even as the eleventh year of a cyclical bull market grinds on.

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Many technicians consider the 10-month moving-average crossover technique as the gold standard among long-term timing practices. The method was successfully applied to several asset classes in the SSRN’s most-downloaded paper of all time, “A Quantitative Approach To Asset Allocation” by Meb Faber.

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We’ve never understood investment quants’ desire to project correlations among assets. Such correlations are inherently unstable.

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Last month we noted that current interest-rate expectations might indicate good timing for dividend investments; however, we strongly suggested being selective, and lean toward high-quality dividend payers.

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Major market tops are drawn-out processes that can prove costly, and infuriating, to bulls and bears alike. Younger readers might be surprised to know that was true before Twitter.

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It’s telling that the stock market rally off of the Christmas Eve lows—impressive as it was (and, for some investors, painful)—did not manage to lift the Major Trend Index beyond its neutral zone.

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Based on the “granddaddy” of all technical indicators—the daily advance/decline line—we wouldn’t normally be worried that the April 30th high in the S&P 500 could be the final high of the bull market.

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We’ve frequently written of the uncanny parallels between the rallies of 2018-19 and 1998-99, but hope that newer readers don’t mistake this analysis as a forecast.

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With the S&P 500 EPS count steadily shrinking and managers getting ever more creative with “adjusted EPS,” corporate profits measured with standardized accounting rules merit a closer look.

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While the economy’s move above its full-employment level carries reliably negative implications for profit margins, the impact on equity returns has varied greatly from cycle to cycle.

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Small Caps typically underperform during a bull market’s final phase, and our findings with respect to the Output Gap aid our understanding of that phenomenon.

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Last month, we observed that crude oil was the only item propping up broad-based commodity indexes, and that something was bound to give with the U.S. dollar pushing to new highs.

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We suggested many years ago that the final top to this historic bull market would be a long and complicated process rather than a clean and singular event.

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Last month’s market action negated the month-old VLT BUY signals for the MSCI EAFE and Emerging Market indexes.

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With multiple indicators flashing signs of an economic slowdown amid trade war uncertainty, investors are betting that an interest rate cut is on the horizon.

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Beware of those who write about stock market history, especially when they speak of cause and effect. The truth is that the “why” can never be known.

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The U.S. economy and blue chips have shrugged off the risk of the worst trade war since 1930’s Smoot-Hawley Act, while comparatively few stocks on either the NASDAQ or the NYSE have broken out to 52-week highs. There’s also the troubling talk of the Fed having tamed “the cycle.” Should investors bet on a potentially wild (but narrower) final melt-up over the next 6-12 months? We don’t like the odds.

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The Major Trend Index has remained in neutral territory during the last several weeks of upside action, suggesting there remain significant fundamental and technical shortcomings beneath it all. But this precarious MTI stance didn’t preclude us from acting on a new bullish reading for Emerging Market equities at the end of April.
 

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Similarities between 2019’s YTD up-move and the late-2018 recovery are so striking they must make even the most vociferous bear queasy. The trends are identical, but the magnitude of both the absolute and relative performance movements was greater in the earlier experience.

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The market’s four-month recovery from the brink of a bear was completed in April, and the ten-year-old bull looks better than ever against all of its post-World War II competitors.

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