A warning to watch?

samsonWell, despite the imbeciles in Washington doing their level best to crash the market last week, the bulls remain in control. First we had the rookie Fed Chairwoman, Yellen, clumsily and inaccurately imply that they would raise rates sooner rather than later. Then we had Democrats openly argue that certain pharmaceutical companies were making too much money (no doubt because “they did not build this…”).

So let’s have a damage assessment, see where the market might head next, and take a look at an interesting table that could help predict the next bear market…

First the S+P:

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As we can see, comfortably above the 50-day average price line (curvy blue line), in an uptrend, and now pushing above the new overhead ‘ceiling’ of 1880. What I’ve also drawn there is an inverted ‘head and shoulders’ pattern forming. If the S+P can push decisively above 1880 and then 1890, we should see a nice spring rally. Currently a little overbought though, so maybe some sideways action this week as it probes that 1880 level. Bottom line is that this still is an uptrend.

But, as I’ve been saying this year, it’s time to be selectively optimistic and also watch out for early signs of the bull market fading. There are many signs and I’ll keep you abreast of all them, but one I want to explain today isn’t covered by many people…

Utility stocks are considered to be a safe-haven in turbulent times. The smart money tends to quietly move into this sector when they see trouble ahead, so it’s worth keeping an eye on what’s going on there. Here’s a league table of all industry groups listed in order of which gave the best market performance of the last 6 months (source: Chart mill):

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As you can see, for this time period of six months (which is a proven forecaster of which stocks do well in the months ahead) doesn’t look good for utilities. But let’s look at a 3 month period:

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Utilities starting to move up that table. Now let’s look at which group is having the most volume increases (a measure of institutional buying):

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And utilities bump up to the number 3 spot.

We’ll keep an eye on this as we move ahead, but for now we must give this grumpy old bull the benefit of the doubt.

Best,

Jim.

 

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