The Stock Market Is Hitting A Pivot Point Here - Mike Swanson (01/05/2017)
Now right now we are at a very interesting moment in the stock market.
I'm going to tell you what I'm seeing with individual sectors and stocks at the start of the year in a second, but first let's look at some big picture stuff.
This is the latest results of the Investors Intelligence Survey.
It's a poll of investment advisors and analysts done every week.
The green line is the number of people who are saying they are bullish on the markets.
It came out yesterday over 60%!
It is a rare thing for this survey to hit 60% bulls.
And from a contrarian standpoint that's bad, because typically that happens before market drops.
When people get real bearish that's a good time to buy stocks and when they are super bullish it's a good time to take some money off of the table.
It last got above 60 in the summer of 2014 right before that August "flash crash" when the DOW fell over 1,000 points in one day.
Before that the last time it got over 60 was way back in the summer of 2007 as that last bull market cycle was completing.
Now levels of 60 do not determine what the stock market will do tomorrow or even next week, but when you look out over a few months it's always a sign that some sort of drop is going to come.
This is is why I think it's best to have cash reserves on hand in order to be able to use them on a dip later!
It's actually going to turn into a great opportunity for those ready!
That means not only have cash on hand, but a game plan, and a knowledge of knowing how to find future market leaders.
The time to chase past fads is OVER!
This is why it's time to turn off CNBC to escape their hype and ignore calls to buy stocks like NVDA!
And this is why I did a video on Monday showing why big cap fad stocks like AMZN are positioned to go down.
Now the stock market went up Tuesday and yesterday, but AMZN barely moved!
AMZN has been lagging the S&P 500 now for weeks.
You can see that with the AMZN/SPX relative strength ratio I have on this chart.
AMZN also has a triangle formation on the chart with support at $750.
If it falls below $750 and I believe it will then I'd look for it have a drop like it did in November.
FB has a similar chart and so do MANY big cap fad tech stocks.
What this means is if there is a market drop early this year these stocks will lead to the downside and hurt people.
So I think they are the first things people should sell if they are fully invested and need to raise some cash now.
Now the stock market itself is in an interesting position.
Here is the Nasdaq.
Notice it's 20-day Bollinger Bands are really close together and the BB Width Indicator, which measures this, is now below 3.00.
That's a real low reading.
What this means is that the daily price volatility for the Nasdaq is really low.
The same is for the DOW and S&P 500.
When volatility shrinks it soon expands.
So the market is in a position to start a big move soon, probably next week.
The Nasdaq has been in a range with 5,500 at the top as resistance and 5,375 as support.
The bands are telling us that this range is soon going to be broken one way or the other and then another real move will start.
What the market does today is likely to set the stage for that move.
So a down day would be bad for the market.
And an up day would be good for next week.
And a day in which it is barely even would then make the action going into tomorrow's close almost certain to set the stage for next week.
Now here is the thing - I have been watching to see what stocks and sectors are moving this week.
The bank stocks are the best looking sector most poised to break out to new highs if the market rallies.
So if the market does go up they will be the leading sector.
Outside them though there is no real dominate sector in a similar position.
AMZN shows you that, but almost the entire Nasdaq looks like AMZN.
So we have stocks that can bounce, but not really breakout to new highs if the market goes up!
So a rally would likely be very short-lived if it were to happen at this point.
The market really needs to consolidate more or pullback first to have another sustainable rally from here.
There really aren't any meaningful gains to miss out on with the stock market right now so I see no reason to be scared that raising some cash means missing out.
And more likely it is going to just drop from here, with stocks like AMZN breaking down to lead the way.
I firmly believe that being in the right sectors is going to be the defining factor in whether we beat the stock market this year or not.
That was the case last year, because people who had the bulk of their money in the Nasdaq 100 simply lagged the market while financials, gold stocks, and the DOW smashed the performance of the S&P 500 and the fad tech stocks that got left behind at the end of the year.
Really I see no reason to continue to hold on to some fad stock that was hot two years ago, but is now a loser lagging the market now.
You want to be in market winners and not market losers.
But there is something about sector investing that makes it so that it doesn't work for them the way it should.
There is a missing ingredient and I show you what it is here:
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