We look to Financials as a leader. We’ve never had a bull market in US Stocks without participation from the banks. They don’t necessarily need to be leading but they do need to participate. When we see the S&P Financials Index going out at new 10-year weekly closing highs, it’s hard to be bearish stocks as an asset class. This has been a big part of the aggressively bullish case I’ve been making since the summer of 2016. Meanwhile, the Broker Dealers Index is holding above its former all-time highs from 2007 and just beginning a new leg higher.
These are not bearish characteristics for stocks as an asset class.
Here is the weekly chart of Financials $XLF breaking out above the March highs, giving us a target above 30. This just so happens to be the former all-time high from back in 2007. This has been our upside target for a long time and I still think that’s where we’re going. It’s still over 10% away:
This is the Broker Dealers & Exchanges Index breaking out above the 2007 highs and just getting going. I think this index gets above 73, which is still another 15% higher from here:
The way I see it, the strength in Financials makes it hard to be a short seller in stocks. I like to incorporate a top/down, weight-of-the-evidence approach. This is one major factor that is hard to ignore. So if the $IAI is above the 2007 highs and the $XLF is above 25, we need to err on remaining very aggressively bullish of stocks as an asset class. In other words, buying weakness, not selling strength.
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