So where does the trail lead from here? So far, the winding path has led to an uphill climb, but how long can that go before the trail turns down again? The market keeps defying those who claim there is something wrong out there, something so wrong that the 2013 rally is suspect. Yet, even I will tell you it is bound to turn down, perhaps sooner rather than later. As to how much, well, who can say, but it won’t be a whopper, that’s for sure. So, I still say, buy on the dips, sell on the rips, and if you get caught in an excessively long rip, don’t worry about being sucked down; just wait it out. I wonder if my mixing metaphors (again) suggests confusion? Just a thought …
- Investor’s Intelligence reports that Bullish Sentiment decreased on the week to 44.2% from 46.3% (48.4% two weeks ago).
- Bearish Sentiment was unchanged at 21.1% (22.1% two weeks ago) and those expecting a correction increased to 34.7% from 32.6% (29.5% two weeks ago).
Okay, so let’s get back to the idea of a big correction coming. Just three weeks ago, the soothsayers suggested because bullish sentiment was so strong, a “big” correction was imminent. Well, that did not pan out. The trail kept winding uphill after a downhill turn or two. Now, investor bullishness is waning, so does that mean a longer stretch of uphill for the market, or can we take the drop in bullish sentiment on face value?
Me? I think it is normal and healthy to be cautious at this point. Not suspect of the long-term prospects of the market, mind you, but cautious of getting in at this particular part of the climb. There is a lot of emotional attachment to the latest run, and market emotion can dissipate quickly, especially if a singular piece of bad news hits the wires. Oh, say, Israel becomes even more bellicose toward Iran, or North Korea does something militarily provocative to disrupt the peace up there on that cold peninsula, or US politicos produce tough rhetoric about the coming debt debates, or, worse yet, those same ideologues actually do nothing to repair the pending damage from the sequester.
So, my guess is investors are watching, waiting, and hoping to get in when something, anything, happens to bring the market backward. In the meantime, the ADP employment data suggests the US payroll report coming out this week will be better than expected. If it is better, then the economy will not be the bad news catalyst investors are looking for.
So far, in 2013, all signs are pointing to an improving US economy on some major fronts – housing values, auto sales, construction, the services sector, manufacturing, dropping gasoline prices, and, corporate spending on reinvestment and M&A. Even Europe is trying not to be the economic catalyst that brings the market down.
- Retail Sales fell in the Eurozone by -1.3% on a year-over-year basis in January. The decline was better than the consensus expectations for a decline of -2.9%, as well as last month’s drop of -3.0%.
- On a monthly basis, [Eurozone] sales rose +1.2%, which was more than the expectations for +0.2% and the prior month’s decline of -0.8%.
- As western economies hit another pothole in their stuttering post-crisis recoveries, pressure to step up economic policy intervention to tackle entrenched unemployment may be building.
Again, don’t expect a major or excessive turn downhill for the market, but do expect a decent drop in altitude sooner rather than later. Be prepared to buy the dips, sell the rips, hold your breath when caught in a rip, and don’t get greedy. Set your profit targets and stick to them.
Finally, here is another trite but accurate thought about the market. It is one to keep in mind always.
- Anybody who has been around for the last decade will likely agree that Wall Street tends to overdo just about everything – in both directions.
Trade in the day; Invest in your life …
