The Weekly Top 10


THE WEEKLY TOP 10


Table of Contents:

1) The stock market has already priced-in a “Phase One” deal.

2) Earnings growth (and future estimates) do not justify this level in the stock market.

3) We’re seeing small (repeat, small) cracks in the consumer.

4) So many indexes and ETF’s have become quite overbought on a near-term basis.

5) Having said this, a “melt-up” from here is not out of the question.

6) Healthcare is overbought, but looks very good on a longer-term basis.

6a) UNH detaches from Sen. Warren…and is breaking out.

7) The Russell 2000 & the Transports still have a lot of catching up to do.

8) The semis look great, but one concern is the cracks that are showing up in MU.

9) AAPL is very overbought and quite ripe for a tradeable pull-back.

10) The Presidential Election: It’s NOT “The economy, stupid”…it’s “The stock market, stupid.”

11) Summary of our current stance.


Short Version:

1) We think we can all agree that if the “Phase One” deal negotiations completely break-down, it’s going to be quite negative for the stock market. However, we do agree with the consensus that says a Phase One deal will indeed be agreed to and signed before too, too long. However, we’re not as sure as the consensus seems to be that a smaller deal will be a catalyst for a significant (further) move higher in the stock market.

2) Another reason to question whether the stock market can rally a lot further from current levels is earnings. Earnings growth has badly lagged behind the stock market this year. So it’s hard to convince us that earnings growth in the mid-single digits next year…following zero growth this year…will be enough to justify a stock market at its current level…much less one that will rally a lot further than it already has over the past year. (Next year’s consensus is 8%-9%, so by the time they report, it will be mid-single digits at best.)

3) Believe it or not, we’re starting to see some small cracks forming for the consumer. We want to emphasize the word “small” in that last sentence, so we are not even raising a yellow flag on the consumer…much less a red one. However, with the holiday selling season upon us, we’ll be watching to see if these small cracks (in consumer credit, the XLY and WMT) turn into wider ones over the next 6-7 weeks.

4) Two other reasons to think that the market could/should see at least a short-term pull-back at some point soon have to do with the technical condition of the broad stock market and many of its key leadership groups…as we well as the big improvement in sentiment. (It’s no longer the “most hated bull market in history.”)

5) So there are a lot of reasons to think that the stock market will have a very tough time rallying a lot further from current levels. However, that does not mean that it cannot rally…or even see a “melt-up”…between now and the end of the year. There are several important factors on the bullish side of the ledger. First and foremost is the Fed (“don’t fight the Fed”)…as well as “performance fear” by institutions if the market is rallying strongly at year end. Finally, history tells investors not to be worried about being over weight equities going into an election year.

6) Friday’s strong rally in the healthcare group was spurred-on by Sen. Warren’s change in her Medicare-for-all plan. This change would not have taken place unless her campaign’s research (polling, etc.) had not shown it was not the winning issue they thought it was. However, as we mentioned above, the XLV is getting overbought, so it might need to take a very-short-term “breather”. However, if the group can rally any further (either now or after a “breather”), it’s going to be very bullish for the group on a technical basis.

6a) The same thing can be said about one of healthcare’s bellwether stocks, UNH. As we said in a CNBC interview last week, it is the one DJIA “laggard” that looks good on the charts. So if it can see some upside follow-through (either now or after a breather) will be very bullish for the stock.

7) The Russell 2000 small-cap index has gone from underperforming…to performing in-line with the broad market…but it has not yet begun to outperform the S&P, so it’s not playing catch-up. Therefore, the Russell is going to have to rally in a more significant way before we can move its performance to the bullish side of the bull/bear ledger……The exact same is true for the DJ Transportation index as well.

8) Another important leadership group, the chip stocks, continues to hold up well. It’s rally has flattened out a bit, but this is nor a major concern. However, one of the key stock in the group (MU) has been showing some cracks recently…..This could be important because whenever MU sees a change in trend, the broad group tends to follow it. Therefore if (repeat, IF) we see some more downside movement in MU, it will be a warning flag for the entire group.

9) AAPL computer has been a great stock and its long-term potential is quite good (given that it has broken to a very nice higher-high). However, on a short-term basis, it has become quite overbought and thus it is getting ripe for a “tradeable” short-term pull-back……Others have started to make this call since we first made it Wednesday morning, so if AAPL sees any weakness soon, it could roll-over could come rather quickly.

10) One of the most famous lines in history that referred to a Presidential campaign came from 1992…when Jim Carvell said, “It’s the economy, stupid.” However, history actually shows that it’s really, “The stock market, stupid.” The facts show that when a President is up for re-election, they are likely to get re-elected if the stock market is rallying…no matter what is going on in the economy…and they are likely to lose if the stock market declines during the election year. The stock market rarely falls in an election year…and there was one exception (1980)…BUT HISTORY TELLS US TO LOOK FOR THE STOCK MARKET TO TELL US WHETHER PRESIDENT TRUMP WILL GET RE-ELECTED OR NOT.

11) Summary of our current stance…..The stock market could rally further into the end of the year. In fact, it could even “melt-up.” However, if it does, it will not be justified by the fundamentals (or potential fundamentals). Will this Fed induced rally take us to bubble levels? Maybe, but that’s what you have to depend on if you’re looking for significantly higher-highs from current levels……Instead, we’re looking for this overbought market to take a “breather” at current levels…and probably give some of its gains back……However, we’ve been wrong before and we’ll be wrong again. If we are indeed wrong…and the market rallies nicely in 2020, look for President Trump to get re-elected.


Long Version:

1) We think we can all agree that if the “Phase One” deal negotiations completely break-down, it’s going to be quite negative for the stock market. However, we do agree with the consensus that says a Phase One deal will indeed be agreed to and signed before too, too long. However, we’re not as sure as the consensus seems to be that a smaller deal will be a catalyst for a significant (further) move higher in the stock market.

The first reason why we have reservations about the impact a Phase One deal might have deals with the watered-down nature of the deal. Based on what we know of the negotiations, it is not going to involve anything important or material towards achieving the key goals the U.S. had in mind when the Trump administration finally moved the U.S. towards pushing-back on China’s unfair trade practices. Although we’re sure there will be some weak language that touches-on certain issues such as intellectual property, technology transfer, verification, etc.…but it will not be enough to remove most of the uncertainty that exists among global business leaders (the ones who make the capital spending decisions). In other words, since these important issues will not be dealt with in a material way…and since the U.S. will keep them on the table for further “phases”…it won’t remove much of the uncertainty that exists for global business leaders today.

Yes, President Trump will call it a “Great deal,” but there is no question that it will be a very, very small one...one that is considerably smaller than the one they were “close” to getting in April (when the stock market was more than 5% lower than where it is today). Don’t get us wrong, removing a few of the existing tariffs will curtail a very small amount of the headwinds facing the global economy, but the question is whether it will be enough to create a lasting (further) rally in the stock market. The global economy was already slowing before the tariffs were imposed…and the pressure that will be applied to China will not end. (In fact, it will increase again after the election…no matter who is elected.)


2) The second…and more important…reason why we have reservations about the effect a mini trade deal (or a “truce” as some like to call it) will have on the markets is because earnings growth will not support a sustainable further rally in our opinion…..We are going to have zero earnings growth in 2019…a year when the stock market has rallied 24%. Yes, the consensus is looking for a bounce-back in earnings next year of 8%-9%. However, since those estimates are ALWAYS lowered (so that they can be exceeded) as we move through the year, the kind of earnings growth we are likely to see next year are no better than the mid-single digits.

Therefore, we have to ask themselves whether that kind of paltry earnings growth in a year following zero earnings grow…is enough to give the stock market a further boost…after it has already rallied well over 20%??? In other words, earnings growth has badly lagged behind the stock market this year. So it’s hard to convince us that earnings growth in the mid-single digits next year will be enough to justify a stock market at its current level…much less one that will rally a lot further than it already has over the past year.


3) Believe it or not, we’re starting to see some small cracks forming for the consumer. We want to emphasize the word “small” in that last sentence, so we are not even raising a yellow flag on the consumer…much less a red one. However, with the holiday selling season upon us, we’ll be watching to see if these small cracks turn into wider ones over the next 6-7 weeks.

The first issue we’d highlight is the drop in consumer credit. The most recent reading took it down to the bottom end of the range it has been in since 2012. The data on consumer credit is very sensitive to consumer confidence, so the fact that has dropped to a relatively low level is a concern. It will have to break-down further from here before it became a warning flag, but we’d also note that the “expectations” component for the Conference Board’s Consumer Confidence data has fallen recently as well. This is worth noting because the “expectations” data is usually highly correlated with the stock market. Since it the “expectations” numbers have been diverging from the stock market recently, it does raise some concerns.

On top of these data points, we’d note that a divergence has developed between the broad stock market and the XLY consumer discretionary ETF. While the S&P has rallied to new all time highs, the XLY has not done much of anything in recent weeks. Not only has it failed to regain its September highs, but it remains 2.5% below its July all-time highs. Given that the S&P has moved 3% above its own July record highs, this divergence is a concern. No, it is not a major divergence…so this is another reason to hold-off from raising a warning flag on the consumer. However, if the divergence widens out, it will definitely be something for investors to focus on as we move through the holiday season.

Finally, we’d like to highlight the action in Walmart (WMT)…which reported earnings and gave guidance last week. It guidance was quite good…and the stock opened 3.7% higher on Thursday morning (after they reported). However, WMT quickly reversed that morning…and closed basically unchanged on the day. On Friday…despite a nice pop in the broad stock market, WMT fell further and closed down more than 1% on the day……Don’t get us wrong, although this is disappointing action, WMT did not break-down below any support levels…so we don’t want to try to describe this action as being horrible. However, it IS disappointing…and thus if we see any downside follow-through in this stock as we move into the holiday season, it will be a warning flag for the consumer.

Again, we want to reiterate that these are just small cracks so far. In fact, the October retail sales data came-in slightly better than expected on Friday…but that data has been falling for the most part since March. Therefore, we want to keep an eye on ALL of the indicators for this vitally important part of the U.S. economy over the coming weeks and months.



4) Two other reasons to think that the market could/should see at least a short-term pull-back at some point soon have to do with the technical condition of the broad stock market and many of its key leadership groups…as we well as the big improvement in sentiment. (It’s no longer the “most hated bull market in history.”)

Looking at the RSI charts on the S&P 500 index…as well as such groups as the techs, industrials, semiconductors, basic materials, financials & healthcare…they are all getting quite extended on their RSI charts. Therefore, if we see any weakness at any time in the next week or so, it won’t take much to turn a very small sell-off into one that quickly turns into a decline that takes 3%-5% off of the recent rallies in these indexes. This would not be the worst thing in the world, but it is more of a possibility than most people seem to think right now.

It’s hard to blame investors for thinking this way…given that the stock market has been up 20 out of the past 28 trading sessions…and the worst day of the 8 down days we’ve had over that time frame gave us a decline of only 0.36%! The overall rally has been almost 8% since the beginning of October, so it’s no surprise that this VERY STEADY rise has lifted investor sentiment in a considerable manner.

To be more specific about the move in sentiment, the Investors Intelligence data shows that the spread between bulls & bears has widened out to 39.6% (the highest level since July 31st…just before a 6% decline began in the SPX). We also have bullishness among futures traders has risen to 90% for the S&P and 91% for the Nasdaq (according to the Daily Sentiment Index data). So there is no question that this is far from a “hated” stock market right now.


5) So there are a lot of reasons to think that the stock market will have a very tough time rallying a lot further from current levels. However, that does not mean that it cannot rally…or even see a “melt-up”…between now and the end of the year.

As always, we like to provide comments from both sides of the bull/bear ledger…and given that the stock market stands at a record high, it would be absolutely ridiculous not to highlight some issues that could indeed take the stock market over the coming weeks. First and foremost, we have the age-old saying, “Don’t fight the Fed.” Even though the Fed has indicted that it will not cut rates further any time in the near future (unless the economic situation declines in a serious manner), they have still cut rates 3 times. Thus that is quite accommodative. Also, even though they keep saying their QE program is not a real QE program, it is still adding liquidity to the system. This is bullish (duh)……..In fact, some people will say that this is all we need to know. As long as the Fed is adding loads of liquidity to the system, the market will move higher. (“End of story,” is what these people say.)

On top of the Fed…and as we highlighted last weekend…we have a stock market that is rallying nicely at the end of the year. For institutional investors, it does not matter what they think about what is going to happen next year, they HAVE to go along for the ride if the stock market is rallying into the end of the year. In other words, even those institutional investors who have long always been known as “long-term investors,” they ALL become short-term oriented at the end of the year (especially if the market is rallying in a meaningful way). Even if they believe a recession and a bear market will begin early the following year, they have no choice but to buy, buy, buy when the market is rallying at year-end!!!

(BTW, this is true for all almost all institutional investors. Yes, there are many mutual funds whose fiscal years end in October. However, their customers still rate their money managers on an annual CALENDAR basis…not from October to October. Thus, with very few exceptions, they all care about what the market is doing over the last 6-8 weeks of the year.)

Finally, we’d also note that next year is the 4th year of a Presidential cycle. Since WWII, there have been 18 presidential cycles…and the stock market has only declined in a substantial way twice. This took place in 2000 and 2008 (when the S&P declined 10% and 38% respectively). In the other 16 examples, the stock market was either flat (like it was 3 times….in 1956, 1960 and 1984) or rallied nicely (like it did the other 13 times). Therefore, unless 2020 is the beginning of a major bear market (which is never out of the question), investors should not worry too much about being loaded to the gills at the end of 2019. If history is any guide, 2020 should be a good year for the stock market. (The only problem is that if history is any guide, if 2020 turns out to be a bad year for the stock market, it should be a LOUSY year!)


6) The healthcare stocks saw a strong rally on Friday…as the XLV healthcare ETF jumped over 2%. Some people said that the reason for the bounce was that the President’s new initiative to make healthcare prices more transparent includes a very weak enforcement policy. However, we agree with those who say it had more to do with Senator Warren’s announcement that her Medicare-for-all plan would be implemented over three years. Of course, any Medicare-for-all plan would be negative for many healthcare stocks, but the fact that Sen. Warren feels the need to pull-back on this issue so early in the campaign means that her campaign’s research is telling her that “Medicare-for-all” is not a winning campaign theme. (She cannot walk away from it completely, but the fact that she is scaling it back so soon means she is not going to push it as hard as originally intended.)

This told investors (especially those who were short the ETF and the individual stocks) that this is not a popular campaign issue…and thus won’t be at the top of Warren’s dance card…even if she is elected. We’re not saying Sen. Warren has completely bailed on this issue. We’re just saying that her announcement on Friday tells investors the Warren campaign has figured out (through polling, etc.) that a big battle against healthcare is not a key issue that will help her get the nomination…or to win the general election. Therefore, the worst concerns about a Warren Presidency are suddenly not as strong as they use to be (at least when it comes to this issue.) This “realization”…along with some help from short-covering is the reason the group rallied so strongly on Friday in our humble opinion.

So what does this mean for the group after Friday’s BIG gain??? Well, Friday’s gains took the XLV to a new all-time high…and also took it above the top line of an “ascending triangle” pattern. Needless to say, this is very bullish for the healthcare ETF…..However, we also want to note that the group has become quite overbought on a very-short-term-basis. Therefore it should take a breather at some point soon. However, this compelling change in Senator Warren’s stance tells us that the group should continue to rally in the not too distant future. Therefore, if it sees any upside follow-through…either now or after a short-term “breather”…it’s going to be VERY bullish for the healthcare sector on a technical basis!!!


6a) We’d also like to highlight one specific stock: UNH. This one had become the poster-boy for Senator Warren’s standing in the polls. As she rose in the polls over the second half of the summer, the stock took it on the chin pretty good. However, this all changed in October…as UNH rallied nicely…even though Warren pretty much maintained her position.

As we said in a CNBC interview on Thursday (see attached video), the October/November rally in took UNH up to its trend-line from late last year. We picked it as our favorite stock out of the “Dow laggards” (the 12 DJIA stocks that were still in correction territory on that day). Well, it did indeed break above that trend-line on Friday…and it is now testing its early 2019 highs. Therefore, like it is with the XLV, any upside follow-through is going to be very bullish for the stock.

However, another thing UNH has in common with the XLV is that it is becoming overbought on a very-short-term basis. Therefore, it might have to take a short-term “breather” as well. However, the stock made a very nice “double-bottom” (from April & September) down near $215, so if can follow that up (along with the break above of its 1yr trend-line)…with a breakout above its 2018 all time highs of $286 any time over the coming weeks, it’s going to be VERY bullish for the stock on a technical basis.

Here is the clip from the interview we did on CNBC.com on Thursday:

https://www.cnbc.com/video/2019/11/14/more-than-one-third-of-dow-stocks-in-correction-or-worse.html?&qsearchterm=mattmaley


7) We haven’t talked about one of our favorite indicators in a couple of weeks: the small cap Russell 2000 Index. We’ve heard a few pundits talk about how great this area of the market has been acting recently. Well, it HAS kept up with the S&P 500 and other major averages, but it has not outperformed. In other words, it has not caught up with the broad market…after spending most of the year badly underperforming the S&P.

The Russell’s rally from the August lows has been the same as S&P…as both have risen 9.6%. However, it is up “only” 18%...vs. a 24% rally in the S&P 500 YTD. Of course, an 18% rally is nothing to complain about, but there is no question that the small-caps continue to lag behind the rest of the stock market…and that is usually not a great sign for a further rally. In fact, not only does the Russell remain more than 8% below its all-time highs, but it is still stuck within the sideways range it has been in since February (albeit at the top-end of that range).

That said, the small-caps have gone from underperforming…to performing in-line with the broad market, so we cannot put its recent action on the bear side of the bull/bear ledger. However, if its going to move to the bullish side of the ledger, it’s going to have to outperform…something it hasn’t done since the very beginning of this year.

We have a very similar situation with the transportation stocks. Even though the DJ TRAN index saw a nice bounce in October, it still remains within its eight-month sideways range…and 6% below its all-time highs from 2018. It is also lagging the DJIA on a YTD basis. However, we do have to admit that the TRAN has been able to outperform the DJIA since their early October lows, so that is a positive development. However, we’re going to have to see it breakout of its sideways range….AND its 2018 record highs…before it will confirm a “Dow Theory” buy signal for the broad market.


8) The other big leadership group that we’ve harped on for quite some time…the semiconductors…continues to hold up well. However, there is no question that it has flattened out over the past two weeks. It has moved up less than 1% since Monday November 4th…and all of that gain came on Friday. This is not a problem…at least not yet. The group had become overbought on a short-term basis, so it was ripe for a “breather.” The fact that it has been working off this condition with a sideways move…instead of a pull-back…could actually be seen as quite positive. In other words, the recent sideways move in the SMH could easily be seen as merely a “breather” that is helping it work-off its overbought condition…on its way to much higher-highs. If you look at the earnings (and the post-earnings reactions on Friday) to stocks like Nvidia (NVDA) and Applied Materials (AMAT), it raises the odds that further gains are indeed on the horizon.

However, we also want to point out that one key stock in the group is showing some cracks…Micron Technology (MU). Over the past four years, MU has a been a great indicator for the direction for the rest of the semiconductor group. MU has actually seen larger swings than the SMH, but it has had a very strong correlation in terms of direction. In other words, when MU sees an important change in trend…in either direction…a change in trend has taken place in the SMH shortly thereafter.

The problem right now is that while the SMH made a new high this month…and stayed there…MU has made a “lower-high” and it has begun to rollover from that November high (which was a lower-high). In fact, it seems to be forming the “right shoulder” of a classic “head & shoulders” pattern. Therefore, if MU sees any more weakness over the coming days and weeks…and drops below the “neck-line” of this H&S pattern, it’s going to be quite bearish for the stock. Since the correlation between MU & the SMH has been so strong in recent years, that kind of move would not be good for the chip stocks either.

We don’t want to get ahead of ourselves. MU will still have to fall another 4% from its current levels before it would test that “neck-line,” so an important break-down in the stock is not immanent at all. However, there is no question that MU is showing some cracks…and thus it is a stock we’ll be watching very closely over the coming days and weeks.


9) AAPL has been one of the best stocks in the market this year, but as we pointed out in our Wednesday morning daily piece, it is getting very overbought…and thus becoming ripe for a tradeable pullback on a short-term basis. To be more specific, its weekly RSI chart now stands at 82.4. That’s higher than it was at the end of September of last year…just below it rolled over with the rest of the market. It’s also very close to the level it hit in May of 2017…just before it fell 10%. It has also moved to 65% premium to its 200 week moving average…which is very similar to the level it reached last September as well. Both of these readings are very close to what they were in May of 2017…just before AAPL saw a 10% correction.

Having said all this, we do have to admit that AAPL reached even more extreme levels way back in 2012. The weekly RSI rose above 86…and the premium to its 200 week MA rose to a whopping 124%!!! In other words, we certainly cannot pound the table and tell investors that they need to take profits in the stock…as it HAS become more extreme than it is today at one time in the past. Instead, we’re just saying that the odds are high that they’ll probably be able to add to positions at lower levels over the next week or two…and thus investors should think twice about adding to positions at these levels in an aggressive manner. (More aggressive traders can consider getting short, BUT they’ll have to use very tight stops.)

On a longer-term basis, the chart on AAPL looks excellent. It has broken substantially above its old highs. In fact, It could fall more than 10% and still remain above those old (2018) highs. There are also many reasons to love AAPL over the long-term on a fundamental basis. However, although the overbought condition on AAPL is not at historic extremes, it is still at a level that is usually followed by short-term pull-back in the stock. Therefore we believe it’s one that long-term investors might want to be less aggressive towards…over the next few weeks.

A very similar call was made by another Wall Street pundit two days later (Thursday evening). Therefore, even though we were out on an island by ourselves calling for a pull-back in AAPL just two days ago, this cautious call on AAPL could become a popular call very quickly…given that this call was made on a financial news outlet. Thus, short-term investors…who are thinking about acting on this call by getting short…should not wait.

Again, any shorts should have very tight stop levels, but as we said Wednesday morning, AAPL is definitely ripe for a tradeable decline…and it could come very quickly now that others are jumping on the band wagon. (BTW, Warren Buffet has cut back some of his position on the stock. That could have been for a lot of different reasons, so we don’t want to harp on that development too much. We’re basing our call on its technical condition…i.e. its extremely overbought weekly RSI chart…and its premium to its 200 week moving average.)



10) One of the most famous lines in history that referred to a Presidential campaign came from 1992…when Jim Carvell said, “It’s the economy, stupid.” However, history actually shows that it’s really “the stock market, stupid.”

The most recent example of this came in 2012…when GDP growth fell from 4.7% to 0.5% from the beginning of the year until the end of the 3rd quarter (the last reading before the election). That was a horrible drop in growth…and it was definitely felt throughout the country. However, the stock market had rallied in the 12 months leading up to the 2012 election…and Obama was re-elected.

Of course, there were other issues involved, but there’s no question that the economy was not very good at all during 2012…and yet the incumbent was re-elected. In fact, in 1992 (the year Mr. Carville made his famous comment), GDP growth ROSE from 1.4% to 4.0% by the end of the 3rd quarter of that year. HOWEVER, the stock market did not rally that year…and it dropped shortly before the election. So you can see that the it was the stock market and not the underlying growth that helped people “feel” like things were worse than they actually were in 1992…and THAT’S what made people feel like they economy was worse than it was…and they did not re-elect the incumbent (President Bush).

So you can see that a strong stock market can make-up for a mediocre or poor economy…and help an incumbent President win re-election (2012). While a lousy stock market can make the economy seem worse than it is…and cause an incumbent to lose an election (1992)…..(When both the economy and the stock market have a mediocre/poor year, it’s a lose/lose situation. That has only taken place in 1976…and the incumbent (Ford) obviously lost.)

Of course, when both the economy and the stock market are rising in tandem during an election year when an incumbent is running…like they were in 1956, 1964, 1972, 1984 and 1996…not only did the incumbent get re-elected, but this “double-boost” (from the economy AND the stock market) gave them a LANDSLIDE victory!

So what we’re saying is that if the economy improves and the stock market rallies, it is HIGHLY LIKELY that President Trump will get re-elected. On the other hand, if the economy continues to slow, BUT the stock market continues to rally, it is also likely that the President will win re-election. Finally, for President Trump to lose his bid for re-election, history tells us that it will probably take a declining stock market (no matter what the economy does).

Of course, no indicator is perfect. In 1980, the stock market rallied strongly from March of that year until Election Day (by more than 30%). However, it had fallen 17% in the 1st quarter of the year…and economic growth was horrible in the first half of that year. (The GDP reading in Q2 1980 was -8.0%!!!....That’s not a typo!) So there IS one example of when a rallying stock market did not result in the re-election of the incumbent President.

However, that took place in a year when the economy sucked and the Hostage Crisis crippled the Carter Presidency…….THEREFORE, unless we see an incredibly powerful unforeseen circumstances arise between now and the 2020 election (like we did in 1980), LOOK FOR THE STOCK MARKET TO TELL US WHETHER PRESIDENT TRUMP WILL GET RE-ELECTED OR NOT…..(Why do think President Trump cares about the stock market SO MUCH???)

11) Summary of our current stance…..Well, right now is when the rubber meets the road. The S&P now stand about 3% above its old record highs. As we have highlighted on several occasions over the past few months, the stock market HAS been able to break to several new SLIGHT record highs, but none of them was “meaningful” enough to confirm the breakout. None of them was able to break more than 3% above its old highs…and each time it was followed by a fairly significant decline. (Again, this is something we’ve been writing about for months…and it is now something the financial media is starting to talk about as well.) Therefore, if the S&P can see ANY more upside follow-through over the coming week or two, it should confirm that a more significant “breakout” is finally taking place.

However, most of the indicators we look at tell us that the market should see a pull-back at some point soon. Economic growth and earnings growth (even if we see the high single digit gains the consensus is looking for) will not be strong enough to justify a major breakout in our opinion. On the technical side of things, the broad stock market and many/most of the important leadership stocks have become quite overbought on a short-term basis. More importantly, we do not believe a “Phase One” deal will be the kind that will remove enough uncertainty to unleash a large amount of capital spending to change the mediocre economic & earnings growth we’re experiencing right now. So even if we see a trough in growth now (or in the near future), we do not think it will be enough to push the stock market a lot higher from its (already) elevated position.

In other words, no matter how much all of these new record highs we see, the recent rally has not been justified by the fundamentals…and is unlikely to be justified them going forward. So despite all the hoopla that exists in the markets right now, the consensus call for future gains are based on “hope” and not on things that would justify a further rally of significance.

Having said all this, we readily admit that the Fed has re-engaged in a very accommodative stance…with lower rates and a new QE program. This could be enough to take stocks higher…especially as we move into the end of the year and “performance fear” becomes acute (and we’re not talking about ED). With this in mind, we believe investors will need to stay nimble……This will be especially true if the market is able to see a “melt-up” over the last six weeks of the year.

HOWEVER, if that happens, investors are going to need to be ready to get a lot more defensive in late December and in January…because the fundamentals will not be able to hold up that kind of rally for very long. Eventually, the facts DO matter.



Matthew J. Maley

Managing Director

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

TheMaleyReport.com

275 Grove St. Suite 2-400

Newton, MA 02466

617-663-5381

mmaley@millertabak.com


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Nov 17, 2019 — 10:11 AM
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