Market Theory: The Waiting Game Continues

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Investors embraced the Trump election as buyers, not sellers. The game was not waiting, it was taking immediate action. We were all witnesses to the surprising 33-day rally that peaked on December 13.  Since then, investors seem to be playing the waiting game for confirmation of an improving economy, rising corporate earnings, or fulfillment of presidential promises.  Excluding last week’s two-day 2.5% pop, the market has been in a slow “melting-up” trend a bare 0.7% gain since December 13 through February 8.

DJIA 1.1.2017-2.12.2017

Market cycles that used to last months, now can move in a matter of days. In our experience, positive news and forecasts can quickly propel US indices up 5% – 10% in a short burst of buying, and then level off as investors wait for confirmation of market changes.  Investors were encouraged last week by several positive reports that kept the slow melting up. Last week was the release of news with the continued rise of Import and Export Prices. Although Consumer Sentiment Optimism levels ticked down from January highs, they continue to tread in waters not seen since pre-Great Recession.

Import and Export Prices 2014-2017

University of Michigan Consumer Sentiment 2013-2017

Today, US stocks continued to backpack from last week’s positive trend on hopes of executing in tax reform and deregulation in 2017. According to the stock market, regulations of the past have limited corporate growth and housing expansion. The Dow is again above the 20,000 level which is becoming a support level that determines the sustainability of this rally.

WHAT DOES THIS MEAN TO ME?

Since November 30 we have adjusted our outlook to favorable on US stock market and economy.  Investors have repeatedly received news of improving economic fundamentals which could be why stocks continued their rise from last week. We would anticipate more good news and positive days in the stock market going forward.  Considering how quickly the market has rallied before Donald Trump’s inauguration it would seem reasonable to anticipate a small 3-5% correction.  If the market continues to rally without a market correction it may become “overbought,” a condition of stock prices exceeding average matrix valuations, with risks of a larger correction.  Currently, we do not view the market at risk of a deeper downside decline.

Contact us if you have any questions about your account or this update.  We look forward to the opportunity to be of service!

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