We previously discussed whether the recent rally from the lows was just a sucker rally ahead of a more significant decline. Our assessment was that was likely not the case. To wit:
“The market surged higher on Thursday and Friday, supported by Apple’s massive $110 billion stock buyback program. With a MACD “buy signal” triggered on Friday and the market not overbought yet, a push above resistance at the 50-DMA seems likely next week. That break of resistance should allow the bulls an opportunity to retest 5200 over the next month or so.
However, while the bullish market setup is intact in the near term, we continue to expect another decline this summer before the election. Historically, institutional players are reticent about holding long exposures heading into an election, so we often see weakness in September and October.”
This past week, the market broke above the 50-DMA with a solid confirmation of the MACD “buy signal.” Currently, the market is decently overbought after the advance, so a pullback to retest the 50-DMA would be welcome. Such a pullback would turn the 50-DMA from previous resistance into support and reduce some overbought conditions.
Importantly, the breakout above key resistance and the reversal of the volatility index suggest that the recent correction is over. However, while the April correction may be over, as noted above, there is still a decent probability of another correction before the Presidential election in November. As shown below, such tends to be a statistical normality during Presidential election years.
Of course, that is just the “average.” This means that Presidential election years have been better and worse. As such, we need to continue monitoring and reacting to the market as the macro and micro environments evolve.
For now, continue to remain predominately weighted in US Large Cap (S&P 500) markets. Money flows, due to passive investing, will continue to keep those stocks elevated.
As we get further into the New Year, we will be able to better recognize where money and allocations are rotating to and make further recommendations for there.
If you are close to retirement or are concerned about a pickup in volatility, there is nothing wrong with being very underweight equities. It is better to be safe than to give up dreams of retirement to rebuild lost wealth.
We previously discussed whether the recent rally from the lows was just a sucker rally ahead of a more significant decline. Our assessment was that was likely not the case. To wit:
“The market surged higher on Thursday and Friday, supported by Apple’s massive $110 billion stock buyback program. With a MACD “buy signal” triggered on Friday and the market not overbought yet, a push above resistance at the 50-DMA seems likely next week. That break of resistance should allow the bulls an opportunity to retest 5200 over the next month or so.
However, while the bullish market setup is intact in the near term, we continue to expect another decline this summer before the election. Historically, institutional players are reticent about holding long exposures heading into an election, so we often see weakness in September and October.”
This past week, the market broke above the 50-DMA with a solid confirmation of the MACD “buy signal.” Currently, the market is decently overbought after the advance, so a pullback to retest the 50-DMA would be welcome. Such a pullback would turn the 50-DMA from previous resistance into support and reduce some overbought conditions.
Importantly, the breakout above key resistance and the reversal of the volatility index suggest that the recent correction is over. However, while the April correction may be over, as noted above, there is still a decent probability of another correction before the Presidential election in November. As shown below, such tends to be a statistical normality during Presidential election years.
Of course, that is just the “average.” This means that Presidential election years have been better and worse. As such, we need to continue monitoring and reacting to the market as the macro and micro environments evolve.
For now, continue to remain predominately weighted in US Large Cap (S&P 500) markets. Money flows, due to passive investing, will continue to keep those stocks elevated.
As we get further into the New Year, we will be able to better recognize where money and allocations are rotating to and make further recommendations for there.
If you are close to retirement or are concerned about a pickup in volatility, there is nothing wrong with being very underweight equities. It is better to be safe than to give up dreams of retirement to rebuild lost wealth.