Articles

By: Chris Rowe — February 27, 2019

Why This Market is Headed "Up, Up and Away"

If you've been following me steadily since the year began, you've probably picked  up on a theme.  Namely that we're in for a strong, sustained bull market.

CHRIS

Two weeks ago ("More Confirmation We're In For a Raging Bull Market") I said the you were about to see "not just any bull market -- but something that will remind you of a Saturn-V rocket lifting off from Cape Kennedy."

Now I know some folks still feel on edge about the market.  I understand.

After all, the stock market did take a good-sized slap down toward the latter part of last year.  So don't take my confident tone as in any way dismissing your concerns.  Far from it.

Instead, I want to pass some of that confidence on to you.  As you're about to see, it's more than justified.

So... yeah... bottom line?  In my view this market is headed "up, up and away."

Bull-skeptics justify their alarm by pointing out the market has climbed so far in such a short span -- the S&P is up about 19% in two months -- that it's become very overbought.

And I would agree that it has -- in the short term.

Long-term, the market looks strong.  The NYSE Bullish Percent Index is in X's... and its status is "Bull Confirmed".  That's the strongest of all the status designations.  And what it's telling you is that the general market supports prices moving higher.

Also, we interpret "overbought" and "oversold" conditions differently depending upon the stage of the market cycle we find ourselves in.

For example, a stock market that recently bottomed out (after going through a bear market) and then made its first jolt higher, is one where "overbought" readings can be ignored.  This is the case for most types of technical indicators.

"Overbought" readings in a bull market that's not very mature tend to suggest a shorter-term top with a coming price pullback (5%-10%) or correction (10%+).  But that's a column for another time.

Also, two weeks ago I said you'd want to keep an eye on the 20-Wk and 40-Wk Moving Averages.  "If and when the [blue] 20-Week crosses above the [red] 40-Week, you're seeing as close to iron-clad confirmation of a bull market as you're likely to see," I wrote at the time.

Two weeks ago those two indicators looked like this.

(Click any image to enlarge)

S&P_2019-02-13_ZoomAndCircle

This image shows the indicators today...
S&P20-40-WkKissing

So that iron-clad confirmation appears to be barely a heartbeat away.

But here's the main reason I'm confident you're about to enjoy the kind of bull market people write songs about.

Typically, when we approach the late stages of a bull market, price gains become concentrated in one particular group.  But the opposite is true today.  And the strength is just becoming more and more broad based.

Here's a snapshot of the current market breadth (the "true market").  This image is taken from our Premium data service, Sector Prophets Pro.

Notice how much it looks like an actual bell curve, with the bulk of the sectors clustered near the "mean".  Not too high (overbought) and not too low (oversold).

HealthyUSBellCurve_2019-02-27

And notice how all 45 sectors are green -- that means Demand is in control across the market landscape. Participation is very broad based.  Not concentrated at all.This is the behavior of a healthy market.

Contrast that with the period from April 1998 -- March 2000, when the opposite was true.  At the top of the dot-com boom, major averages (the Dow, the S&P etc.)  were gunning higher but, hidden from the average investor, the foundation of the bull market was eroding.

The gains at that time were concentrated almost entirely in Tech Stocks (and a handful of Biotech stocks).  And beginning in April 1998, in most weeks, more stocks were seeing weekly declines than were seeing advances.

In 2017, Technology was once again the strongest industry group.  But gains weren’t “concentrated” in any sector.  Tech wasn't an outlier.

So to sum up: the rocket is on the launch pad... the liquid oxygen is in the tanks... the ground has started to rumble...

... and Mission Control is intoning: "5 - 4 - 3 - 2..."

Talk to you soon!
Chris
CHRIS

 

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