The latest from Raymond James strategist Jeff Saut nicely encapsulates what we think is how a lot of investors are thinking. It’s hard to not like stocks, but those rising bond yields are tad worrisome. Let’s hope we’re not looking at some canary in the coalmine.
Speaking to the stock market, while the intermediate/longer-term outlook remains positive, the shorter-term environment continues to counsel for caution. Granted, we may be “talking” our position, having been too cautious since recommending that strategy on March 15th with the SPX at 1150. However, as Charles Dow stated – The successful investor needs to be able to ignore two out of every three money making opportunities.
Or as Warren Buffett puts it, “The market is very efficient at transferring assets from the impatient investor to the patient investor.” Anyhow, we are patient, and our indicators are still well overbought. Also, the MACD indicator is on the verge of flashing a short-term “sell signal,” the number of NYSE new highs has narrowed noticeably, the upward revisions in analysts’ earnings estimates has narrowed while analysts’ Buy ratings relative to Sell ratings is at an eight-year high, and last week saw the S&P 500’s (SPX/1166.59) first 1% downside session in weeks – the longest such skein of the current “bul run.” Further, last week there were two sessions of “negative key reversals” (Thursday and Friday), which by our pencil is a sign of distribution of stocks (read: caution). As our technical analyst Art Huprich observes:
“Within the context of the current intermediate-term uptrend, on a short-term (trading ) basis, and similar to what occurred on September 23, 2009 and October 21, 2009, the S&P 500 recorded a negative key reversal formation (last Thursday and Friday)! The intraday high to intraday low decline for each previous instance was 5.6% and 6.5%, respectively.” The call for this week: The bond market is at kiss-and-tell levels as the 10-year Treasury yield approaches its reaction high of ~4%
(see chart). As repeatedly stated, we think this “higher rates” mindset is what’s behind the U.S. Dollar Index’s strength as it broke out to new reaction highs last week. We also believe both of those events are responsible for the Reuters/CRB Commodity Index’s weakness.
Photo: Raymond James