Jeffrey D. Saut, Chief Investment Strategist | (727) 567-2644 | jeffrey.saut@raymondjames.com
MARCH 12, 2019 | 8:16 AM EDT
"If there is one thing to be gleaned from the futures market this morning, it is this: the Dow Jones Industrial Average is not 'the market'. When one refers to 'the market', think the S&P 500.”
. . . Briefing.com
If I have heard it once, I have heard a million times from stock market guru Leon Tuey. To wit:
"Many persist in believing that the S&P is 'the market' which it is not as it only represents 500 big cap stocks and it is a weighted index. On any given day, however, several thousand stocks are traded in the U.S. and that is 'the market'. Hence, it's much more important and more informative to watch the Advance-Decline Lines as they reveal the true health of the market.
SHORT-TERM: Last week, the short-term oscillators (daily) registered oversold readings pointing to a bounce this week, and the market is rallying right on cue. Pundits, however, point to the 200+-point drop at this morning's opening. Little do they realize that much of the loss was due to a sharp plunge in Boeing and other airline stocks while Advance outnumbered Declines by a margin of more than 2-to-1 both in New York and on the NASDAQ. In other words, most stocks rallied.
INTERMEDIATE-TERM: As mentioned, in the week of February 25, a consolidation/correction was signaled as the market was grossly overbought, momentum and sentiment deteriorated. Short-term rallies notwithstanding, until a grossly oversold condition is reached, momentum and sentiment improve, further consolidation/correction lies ahead. As noted, the correction will prove to be rotational/time rather than magnitude as in December, fearful of a recession and a bear market, investors liquidated their equities ferociously. Consequently, they are grossly under-weighted in equities and are sitting on a mountain of cash. Now, they are starting to realize that given the Fed's dovish posture, there is no recession and as this begins to dawn, investors will scramble to get back in. Hence, the consolidation/correction is nothing more than a normal reaction to an overbought condition within an ongoing bull market which is healthy. After gaining more the 19% from its December low, the bull is just trying to catch its breath, a well-earned rest.
LONG-TERM: The secular bull market which commenced on October 10, 2008, remains firmly intact. Investors are witnessing the second leg of this great bull market that began in February, 2016 which is always the longest and strongest as it is driven by improving economic conditions caused by the monetary stimulation of years past. Since the first leg lasted nearly seven years, despite the black headlines and the widespread fear, the current leg remains relatively early."
And then there was this from our friends at the astute Lowry’s Research Organization:
"On Monday, the DJIA and S&P 500 rallied throughout the day, adding 0.79% and 1.47%, respectively. The lag in the DJIA was the result of extraordinary weakness in one of its largest components – Boeing (BA). Overall, Demand and the breadth behind the gains were strong, with Up Volume at 83% of total NY Up/Down Volume, while Advancing Issues made up 79% or total Advance/Decline Issues. Further support for Monday’s rally was reflected in Buying Power’s 4-point gain and Selling Pressure’s 4-point loss."
Stock Chart’s, John Murphy, went one further by writing:
"1) TECHNOLOGY SECTOR LEADS TODAY'S REBOUND AND HOLDS ITS 200-DAY LINE
2) SEMICONDUCTORS ARE HAVING AN EVEN STRONGER DAY
3) THE NASDAQ AND S&P 500 REGAIN THEIR 200-DAY LINES
4) THE DOW SHRUGS OFF BIG BOEING LOSS
5) AND IS BEING LED HIGHER BY APPLE, INTEL, AND MICROSOFT
6) MICROSOFT NEARS ANOTHER TEST OF ITS DECEMBER HIGH"
As for me, I have always averred the support level for the S&P 500 (SPX 2783.30) was in the 2700–2730 level and that the December 2018 intraday low of 2346 would NOT be retested. Last week’s pullback stopped at 2722.27; GED! Speaking to crude oil, as Cornerstone Analytics’ savvy Mike Rothman writes:
"Fears of an economic slowdown in China have recently weighed heavily on global oil prices. Demand deterioration leading to a drop in demand might sound like straightforward logic, but February’s Chinese oil usage data paints a completely different picture. Year over year crude demand increased by almost 15%, a staggering 1.78 million b/d for the month. Keep in mind that the per capita oil usage in China is at only 2.3 barrels a person – about one-tenth the usage rate of the US. With coal still accounting for 70% of China’s overall energy usage, we continue to have trouble turning bearish on China’s impact on the global oil balances. In the words of Mike, “it’s strange to see such a preponderance of bearish beliefs that keep getting defied by obvious bullish data.”
Yesterday, the SPX rallied 1.2% above its 200-day moving average, suggesting this rally may have upside “legs.” This year, the Federal Reserve has taken a softer tone, concerns regarding a trade war with China have fallen, and recessionary risks have declined. This more benign backdrop creates the potential for multiples to expand despite uninspiring profit trends. This morning, the preopening futures are marginally higher with no real overnight news.
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