These Are The Cards We've Been Dealt

JC Parets
March 30, 2019

We have to play the cards we're dealt. Like it or not, this is the environment we're forced to invest in, but only if you want to. You don't have to invest. Cash has been a viable option for 6 months. It's worked out great. Most stocks, sectors, US and International Indexes are still below their January 2018 highs. I can give you the exact numbers like we provide for our Institutional Customers, but just take my word for it. It's not even close. We've been in a 14-month sideways range, or downtrend, depending on who you ask. Either way, it's not an uptrend for most stocks.

Now, this 14-month nothing burger comes within the context of a major bull market in stocks, that arguably started in 2016. After a monster run throughout 2016 and 2017, the stock market, both U.S. and abroad, has consolidated those gains. It seems perfectly normal, and well deserved, if you ask me.

So what if this takes another 2 months? Or 3 months? or more? Is it the fault of the president of the United States? Is it the fed's fault? The media's fault?

This is the current market environment that we have upon us. They're going to try their best to distract you with stories about china trades and fed rate hikes or something they call the mueller report. Why should we care about any of these things? We don't. And shouldn't. It's gossip.

Good things take time. Strong bull markets are sparked from big bases. The way I learned it, The bigger the base, the higher in space! How about 14+ months of basing? How about 20 months? Until we break out, Cash is still a viable option. And it's been working!

This is a video I recorded at Chart Summit in late February. At that point we were seeing more new 52-week highs on the NYSE than we had seen in over 6 months. We've continued to consolidate since then, but I believe the ultimate resolution is higher. Check it out:

What we're looking for is simple. We want to see an expansion of stocks, sectors, U.S. and International Indexes breaking out above their January 2018 highs. Right now, just a tiny fraction have done so. The more stocks and sectors we see breaking out, the higher the likelihood, and the sooner, we'll see the major Indexes like the S&P500 and Dow Industrial Average making new highs as well.

My friend Eddy Elfenbein said it well yesterday:

Heterodox take. What if we've been in a bear market for 14 months? Technically, the S&P 500 surpassed its Jan 2018 peak in September, but not by a lot, and many sectors did not. Look at the S&P 500 (in black) along with the Value Index (blue) and High Beta (red). pic.twitter.com/GxJJkp6J16

— Eddy Elfenbein (@EddyElfenbein) March 29, 2019

For me, it's more about the internals themselves. I think Eddy is right, we are in a 14+ month cyclical bear. BUT, I believe this comes within the context of a secular bull market. More importantly, based on any historical measures, this is perfectly normal behavior.

How long will it take? I don't know. No one does. It could take another 6 months!

The point today is that we're looking for an expansion in breadth. While we're not see contraction, things aren't improving either. Things are mostly just a mess.

Not all markets need to be trending at all times. It doesn't have to be an uptrend, and it doesn't have to be a downtrend. We can be somewhere in the middle. I always like to reference what I think is my friend Josh's greatest blog post of all time: Tops, Bottoms & Middles

It's the weekend and the market is closed. It's a great time to reflect on where we are, both personally and as market participants.

How do you feel about the current environment? Let us know.

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JC

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