Stocks Hitting All-time Highs is Characteristic of an Uptrend

JC Parets
August 29, 2017

You can data-mine all you want. Tell me the world is ending, the U.S. President is crazy, nuclear war is around the corner, the N.Y. Jets don't have a quarterback.....Whatever it is that you're using to justify your heavy cash positions or short exposure the past 18 months, just remember this: Stocks are hitting all-time highs. Let's go over this again: Stocks are not just hitting multi-month highs, or even 52-week highs. Stocks that are driven by supply and demand dynamics of investors all over the world are at the highest levels in the history of stocks.

So how do we define stocks? That's the tricky part. Is it the S&P500? Although it's only 1.4% away from an all-time high, and clearly in a strong uptrend defined by higher highs and higher lows, I would argue that it's only part of the equation. What about the Russell3000, which represents approximately 98% of all investable assets in the U.S. equities market? Although just 1.7% from its all-time high, it is still just representing 1 country. There has to be a better way.

Stocks don't move based on what happened in a given country on that day. Stocks move based on the collective conclusions made by market participants all over the world, not just in New York City or Greenwich, CT. So to get a real picture of what is happening in "Stocks", as an asset class, I think we need to look beyond U.S. borders. To see what is actually taking place, we need to see what sort of demand there is for Emerging Market stocks, Europe, Asia, Latin America and everything in between.

Here is an equally-weighted chart of the Top 10 Stock Markets in the entire world. This includes, not just the S&P500 representing the United States, but also Japan, UK, China, Germany, Hong Kong, Canada, Brazil, Australia and India. On Monday, this Equally-weighted index hit new all-time highs:

GLOBE123

Are all-time highs characteristic of downtrends? Or are all-time highs something we normally find in markets that are in uptrends?

Some people think that the largest 10 stock markets in the world are not representative enough of the current landscape for stocks. So why don't we take the top 40 stock markets in the world and see how that chart looks?

How's this? Now we're bringing in markets like Indonesia, Italy and Hungary into the mix. New all-time highs this week. And for you guys who look at momentum as a supplement to price, notice how the 14-day RSI has been no where near oversold conditions this year. These are all bullish characteristics, not bearish ones:

GLOBAL40123

If I thought that the weight-of-the-evidence was pointing to a downtrend in stocks, I would be aggressively shorting stocks and/or loading up on cash positions. That approach is what makes the most sense in that type of environment. But when stocks all over the world are making new all-time highs COLLECTIVELY, it is very very difficult for me to be bearish. Yes I know, you hate the president. Yes nuclear war. Yes CAPE (whatever that is). But price is the only thing that pays. Bottom line. If you have an opinion but the market doesn't agree with you, it's called being wrong.

When the evidence points to taking a more defensive approach to stocks, I'll be the first one to raise my hand and jump on the bandwagon with the gloom-and-doomers, gold bugs and all the other angry people who have been underinvested the past 18 months. But that's not today.

Cheers,

JC

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Advisors Corner

  • We took the 10 largest stock markets in the world and Equally-weighted them to get an idea of the direction of stocks as an asset class. As we can see here, they are hitting all-time highs, which is a characteristic of an uptrend

GLOBE123

  • Some people think that the 10 biggest stock markets in the world is not enough to get an idea of what's going on. To those people I show them the Top 40 markets equally-weighted

GLOBAL40123

  • We want to be buying weakness in this environment, not selling into strength

 

 

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