It feels good to be back in the office listening to music and ripping through charts! This is something I love to do. The past few weeks were incredible. I met with a lot of smart people throughout Europe and I’m back with new perspective, new ideas and new friends. You can’t put a price tag on those experiences. When people ask me what they should invest in, I can’t help but answer with: yourself. Invest in what you’re doing and what you’re learning. I believe this to be true now more than ever.
The first thing that stands out to me as I work through my chartbooks is how little things have changed, particularly in the stock market. The S&P500 is up 1% since I left a month ago. The rangebound market we’ve been in continues to progress in the same direction, or lack thereof. In mid-May I pointed to the Global 100 as the chart that tells the stock story the best. At that point, we were looking at a 3rd test of overhead supply starting in January 2018. Fast forward a month and stocks are now attempting a 4th test.
My pal Jonathan Krinsky, Chief Market Technician at Baycrest Partners, put out a note today about the U.S. Stock Market and said,
We don’t talk about the Dow Jones Industrial Average (INDU) often, but it now looks like it’s poised for a fourth test of resistance at 26,500. Triple tops are rare, and it’s nearly impossible to find a quad-top”
I totally agree with this statement. I think the Dow and the Global 100 look exactly the same and we can make this case for both:
Also notice how the retests of overhead supply keep coming more frequently. In other words, less time passes with each test. We rarely see triple tops, and I can’t even tell you if I’ve ever seen a quadruple top. Betting on these outcomes seems to never pay. We continue to remain in the camp that these are well-deserved consolidations in stocks after the historic 2016-2017 rally. That was one for the record books in many stocks, sectors and indexes. The trend here structurally remains higher.
The bigger question is whether or not it will be the 4th or 5th test of overhead supply to get the breakout many have been waiting for. Patience has paid off for sure. But what we are likely to see before “the breakout” is an expansion in participation. What I mean by that, is there are still very few stocks, sectors and indexes, both in the U.S. and around the world, that are above their early 2018 highs. Remember, this is a market of stocks. So as we see expansion in participation to the upside (above the early 2018 highs), we want to bet that the indexes and many sectors will follow.
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