It was just about a month ago that the market had given up all of its gains for the year.
And now in just over a month, the S&P 500 has gained 13.3% from its low on October 15, and so is up 12.1% for the year.
Hurray! Yahoo! The market’s favorable season and our buy signal is off to a great start.
Can the market hold those gains and make more?
Favorable seasonality typically runs from October to May or June. We are in the three-month period of November, December, and January, which has the history of most often being the most positive three month period each year.
But not always, as a glance at what happened in January this year indicates.
And is the market not just a tad overbought short-term above 50-day m.a.’s, with short-term technical indicators looking precarious?
It begs the question, how can investor sentiment and confidence be so high when the risk of at least a short-term pullback seems so obvious?
Only a very tiny percentage of investors look at charts. Most listen only to the always bullish forecasts of Wall Street and its media cheerleaders.
But we continue to look at charts and technical indicators, short-term, intermediate-term, and long-term. They are more than slightly helpful in cutting through the crap.
David Lebovitz, global strategist, JP Morgan Funds: “It’s tough for me to wrap my head around the next big move being lower. Some people aren’t comfortable with current levels, but fundamentals remain strong.”
Henry Blodget, Business Insider.com: “Stocks are now more expensive than at any time in history, with the brief (and very temporary) exceptions of 1929 and 2000. . . . To be crystal clear, there is only one way that stocks will keep rising from this level and stay permanently above this level. That is if it really is “different this time,” and all the historically valid valuation measures are no longer relevant.
It is possible that it is different this time. It is not likely, however. And one thing to keep in mind as you listen to everyone explain why it’s different this time is that one of the things everyone does when stocks get this expensive is attempt to explain the high prices (and justify even higher ones) by looking for reasons why it’s different this time.
That’s what most of us did in 1999 and 2000. For a while, we seemed “right,” and we were heroes because of it. But then, suddenly, without much warning, we were drastically, violently wrong. And we — or me, at least — learned that searing lesson that I referred to above: That it’s almost never “different this time.”
J Lyons Fund Management: “Everyone knows that, as a whole, the U.S. stock market is overbought. At the moment it doesn’t even matter what duration one is talking about, short, intermediate or long-term. . . . Suffice it to say, the stock market is extended. Can it stay extended? The past few years prove that it can. They also prove, in our view, that the intermediate-term is the best time frame to focus on. . . . I will only leave you with this: After reaching a similar overbought level in 1998, the market continued higher for another 20 months or so. So it is possible that the market continues higher unimpeded. However, looking historically, that period was an anomaly. If you are willing to bet on it happening again, go for it. If not, you may consider adopting measures to aid in managing risk.”
To read my weekend newspaper column click here: Global Economies Will Dictate Rate Hike Timing
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Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!
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