Market Thoughts – February 23rd, 2017

So the market continues to move relentlessly higher, but today we finally saw some selling in certain names and sectors. Utilities and Staples came back from the dead. Move 100% cash and run for cover? Not necessarily. Could we use some rest in price action either sideways or to the downside? Yes, and that would be welcomed in my book.

Here are a few of my thoughts right now:

Everyone is telling themselves they want a pullback and when it comes they will be a buyer. Will they though when the time comes? What if a bigger pullback does not come? The market “is designed to fool most people, most of the time.”

I have a friend who is on the Merrill Edge team and he enlightened me that phones have been busy all day with those not wanting to miss out on the move higher. FOMO is powerful.

I don’t know what numbers companies are reporting, but the reaction to those earnings are way more positive than negative. The reaction is more important and the market is telling us something here.

The strength in IPO stocks (most, not all) is a thing of beauty.

M&A activity is continuing.

The VIX is too low and sentiment is too bullish right?. Ari Wald defends this here:“bull markets are typically characterized by low VIX and forward returns are usually higher when VIX is low.” The VIX just measures the implied volatility of S&P 500 options. Who cares. If your investing plan centers around the VIX, you should try something new. And since when is investors being bullish a bad thing? How literal should we take those surveys? If I noticed one thing from FinTwit, its that every is long on green days but miraculously short the next day when its red..

And here are a few charts I have my eye on:

On November 14th, I  posted about what I thought was “The Most Important Chart” at the time. It brokeout higher and we know what happened from there. I am still digging this chart. If the ratio stays above 2007 highs, I don’t see a reason to have one foot out the door like many do.

Micro Caps are holding the 2015 highs. It would ideal to me if this area held despite a pullback in the overall market to show the continued risk appetite out there. I am watching the negative momentum divergence here though.
iwc.png

The Nikkei has consolidated sideways nice and tightly. Japan hanging around is bullish to me and it looks like it wants higher. I am watching the divergence here as well.
nikkei.png

High Yield Corporate Bonds relative to Long Term Treasuries look just like the Nikkei in their consolidation too. Tough to argue that this intermarket relationship is bearish unless it collapses.
hygtlt.png

One of the largest components in U.S. market averages, Apple, came back from the dead and is just a monster. We are now at all time highs and with a daily RSI that hit 90, I would not be buying right here. But I don’t know how you could possibly argue this is bad for the stock market as a whole. This goes for other megacap names like GOOGL, AMZN, NFLX, and FB in similar situations too.
aapl.png

The only way to know is to continue to monitor price action. The indexs are good at masking weakness so be aware of that. I feel dips, if that is a thing anymore, should be bought.

Thanks for reading.

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