Typically, I write about individual stocks for Real Money. Once in a blue moon I have been asked to comment on the direction of U.S. interest rates, the Dollar Index, Gold, or Crude Oil. Occasionally one of the editors asks my view of the broad market. Today is one of those days.
As I thought about my views of the overall market I was reminded of a saying from 1976 when I started in a commodity training class at Merrill Lynch: "Calling the market is easy. Getting it to answer is hard."
Keeping that phrase in mind I want to look at the market at this juncture in time. In no particular order, here are some of my thoughts about sentiment.
The DJIA is closing in on 29,000 and after that the DJIA 30K baseball caps come out. I would think that sentiment should be bubbling with stocks at these highs, but I just don't see it. NASDAQ 10,000? For example - Gartman has hung up on his market letter. No one asked me about the stock market at a recent New Year's celebration. People seem to be numb to the market's occasional dips and complacent about its rise. I haven't gotten a nasty email in a long time from a Real Money reader when I write that I see a correction coming for a stock. The most popular stock market book of 2019 I believe is about the mathematician Jim Simons. But at the same time a former student mine from Baruch tracked me down for a reference to get into trading as a profession. Other students I have stayed in touch with have left the day trading grind.
These may seem like random thoughts but it is my way of thinking about equities and risk. The stock market has seemed to operate in a certain way for most of my 46 years in the business but many of the traditional "guidelines" have been altered. People used to get too bearish at bottoms and too bullish at tops. With financial advisers running your money and an 11 year bull market it seems like everyone now has their emotions in check and the market is not out over its skis. Math has taken over. The hot tip is dead. Multiple Hindenburg Omens have not identified a decline (by the way I do not consider the indicator useful). How can we judge sentiment and determine if the market is frothy if the public is largely withdrawn? Technical analysts have been very creative over the decades and have found ways to measure the pressures in the marketplace so why hasn't a new approach gained credibility? Again, more questions than answers. Let's look at some charts.
In this daily bar chart of the (SPY) ETF, below, we see that the SPY is up significantly in the past 12 months.
The On-Balance-Volume (OBV) line shows a positive trend and the Moving Average Convergence Divergence (MACD) oscillator is mostly bullish.
The 12-day price momentum study has been making a bearish divergence when compared to price making new highs but that has not stopped the advance.
In this weekly bar chart of the SPY, below, we can see the advance from 2015. Prices are above the rising 40-week moving average line.
The weekly OBV line is bullish and the 12-week price momentum study is showing a bearish divergence from March to December when compared to prices making higher highs.
In this monthly Japanese candlestick chart of the SPY, below, we see a pattern of five record highs into the end of 2019. January, February and March could become six, seven and eight so the watch for a top reversal that could be in April of 2020 using the technique of 8-10 record highs.