Catching Up with All That's Going On
2019 has brought us an upswing for stocks. It's also seemingly stopped the higher yields for treasuries, thereby causing their prices to rise. Until this morning, the talking heads sounded bolstered by such action. The gloom of December (the worse month for stocks since 1931) has faded.
Don't be fooled.
Of course, such skepticism isn't unique. Others have furrowed their brows, scratched their chins and exhaled a long, "Hmmm....." Count us as a member of that club. Here's why.
In the waning weeks of December, the Dow Theory gave a bear market signal for stocks. This signal says that the primary trend of the market, after 9 long years, fundamentally shifted. The key word here: "primary." Dow Theory doesn't put much stock in secondary corrections withing primary trends. It may identify such at times, but it's role is not to tell you what to do with your investments - simply to make note of it. A primary trend signal, however, does tell you what to do: Sell your stocks.
In addition, another signal we follow - one based on the momentum of a given market - also gave us a sell signal for stocks. That's one's based on momentum, and uses a particullar look-back period. Looking back on December 31st, we found that stocks had underperformed treasury bills during that period. Translation: Sell.
To be fair, the major proponent of the "Melt-Up" in the stock market (which we've aluded to a number of times) hasn't backed down. He's still ready to jump on the
So much for stocks.
As for bonds, yes they've risen in price. Does this mean that the long-term bond market trend has not indeed shifted from its bull market (begun in 1980) to a long-term bear market? Likely not, although we're keeping an open mind here. Given the typcial length of bond market primary trends vs. stock market pricmary trends (decades for bonds vs. years for stocks), there's certainly a bit more "wiggle room" when attempting to identify a major turn. But if I had to bet the ranch (something I never do), I'd bet on yields continuing to rise long-term.
Now, to catch up on what our research and our "brain trust" have been telling us.
First, the various ratios we monitor (e.g. 2-yr vs 10-yr treasuries) haven't really given us anything definitive. Depending on how you interpret these, we're thinking: a recession will start sometime in the next year or so; the various stock market indices we follow aren't showing clear divergences. So even though our key indicators have given us sell signals, theses really haven't.
Here's one from our brain trust: Stocks will rally in the short-term, likely beginning in a few days, lasting through the month. There's more, but that's enough for now. We'll circle back to some ideas our brain trust has thrown out there recently in future posts.
Don't be fooled.
Of course, such skepticism isn't unique. Others have furrowed their brows, scratched their chins and exhaled a long, "Hmmm....." Count us as a member of that club. Here's why.
In the waning weeks of December, the Dow Theory gave a bear market signal for stocks. This signal says that the primary trend of the market, after 9 long years, fundamentally shifted. The key word here: "primary." Dow Theory doesn't put much stock in secondary corrections withing primary trends. It may identify such at times, but it's role is not to tell you what to do with your investments - simply to make note of it. A primary trend signal, however, does tell you what to do: Sell your stocks.
In addition, another signal we follow - one based on the momentum of a given market - also gave us a sell signal for stocks. That's one's based on momentum, and uses a particullar look-back period. Looking back on December 31st, we found that stocks had underperformed treasury bills during that period. Translation: Sell.
To be fair, the major proponent of the "Melt-Up" in the stock market (which we've aluded to a number of times) hasn't backed down. He's still ready to jump on the
So much for stocks.
As for bonds, yes they've risen in price. Does this mean that the long-term bond market trend has not indeed shifted from its bull market (begun in 1980) to a long-term bear market? Likely not, although we're keeping an open mind here. Given the typcial length of bond market primary trends vs. stock market pricmary trends (decades for bonds vs. years for stocks), there's certainly a bit more "wiggle room" when attempting to identify a major turn. But if I had to bet the ranch (something I never do), I'd bet on yields continuing to rise long-term.
Now, to catch up on what our research and our "brain trust" have been telling us.
First, the various ratios we monitor (e.g. 2-yr vs 10-yr treasuries) haven't really given us anything definitive. Depending on how you interpret these, we're thinking: a recession will start sometime in the next year or so; the various stock market indices we follow aren't showing clear divergences. So even though our key indicators have given us sell signals, theses really haven't.
Here's one from our brain trust: Stocks will rally in the short-term, likely beginning in a few days, lasting through the month. There's more, but that's enough for now. We'll circle back to some ideas our brain trust has thrown out there recently in future posts.
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