Wednesday, August 17, 2016

Waiting for the consolidation to end

Mid-week market update: The intermediate term outlook that I've been writing about for the past few weeks hasn't really changed (see Get ready for the melt-up and Party like it's 1999, or 1995?). The stock market continues to enjoy a tailwind based on the combination of overly defensive investors and a growth turnaround which is leading to a buying stampede.

The Dow, SPX and NASDAQ made simultaneous new all-time highs (ATHs) on Friday, August 5, 2016 and repeated that feat again this week on Monday, August 15, 2016. Ryan Detrick of LPL Research pointed out that such events tend to be bullish. The chart below shows past instances of simultaneous new highs.

The table below details stock market performance after such events. Current circumstances are consistent with my buying stampede thesis.

However, it is not at all unusual for stock prices to trade sideways after breakouts to ATHs. As long as the consolidation action is benign, the path of least resistance is up. The minor market weakness in the last couple of days is also consistent with my view of sideways consolidation.

The full post can be found at our new site here.

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