I haven’t said much about the stock market in over two months, because I have been talking about gold a lot. I wanted to make sure you were on top of the gold action with me going into the June breakout and even now gold and silver is the place to focus on to make gains.
Right now just about everyone is bullish on the stock market. It dipped a little in May, but once the S&P 500 went through the 3,000 level and the SPY ETF made a new high all bears vanished. Now the Investors Intelligence Survey is showing that the advisors polled are all bulled up again. A full 58% of them declared themselves to be bulls and only 16% bears last week.
Great buy points in the stock market come when the VIX spikes up over 30 and the number of bears outnumber the number of bulls in this survey. But now the bulls are growing fast. In fact readings of over 55% bulls historically end up being a bad time to put new money to work in the market.
So is it time to worry?
One person sent me this email last week:
Mike, Barry here from Perth in Australia. Thank you as always for the free emails and the info you send out to us. I have not seen for a while one of your talks on where you think the US stock market is going. Considering the bond rates are dropping and the share market going up. Do you see a big share market correction in the near future.
Right now I don’t see any sign that sizable correction is right in front of us. I do believe though that at some point we’ll once again see the market have another correction. Just a pullback from here down to the 200-day moving average on the S&P 500 would be a 6.5% drop. You can see on this chart that this moving average is around the 2800 level.
Really corrections and drops are inevitable. Nothing is going to go straight up forever. But with the stock market I don’t see great upside potential either from here in the short-term. The S&P 500 is trading with a cyclically adjusted P/E over 30, which makes it extremely elevated from a valuation standpoint.
That said tops are a process. It usually takes at least a few weeks of the internals of the market fading before a big drop comes. Last year the 20% decline into the end of the year was preceded by internal divergences with lots of leading stocks starting to fade in September before the market started to Fall in October.
At the moment people have the end of the month FOMC meeting where interest rate cuts are expected to be announced to buy into and then another such meeting in September. My guess is that the next 20% drop in the market will come after a rate cut meeting in which people worry that there won’t be another cut in a long time and decide to just take profits.
That could be in October again or next January. I can’t predict it this far ahead of time and have to watch the indicators to see if any warnings are being flashed by them and right now I don’t see any such danger signs.
My guess is that we could see the S&P 500 hit the 50-day moving average soon and then rally up again and maybe even do that a few times the rest of this year. Many bulls are expecting a huge blastoff exhaustion rally, but the market is just as likely to float around not doing much at all returning to its low volatility mode like it got into before last year’s 20% drop for a few months. I really don’t care about trying to trade little swings up and down of a few percent.
The US stock market is becoming boring. You see this on CNBC and Fox Business where now they are spending just as much time talking about Trump tweets as Apple stock action.
The reality is right at this moment I don’t see much profit potential in trying to trade the popular US stock market ETF’s like SPY one way or the other. More money is to be made now in the precious metals arena and mining stocks in my view.
The GDX gold stock ETF for instance is up almost 40% right now from where it was at the start of May! My top stock pick for July, Kirkland Lake Gold, is actually up over 49% from the start of May.
KL is becoming the leader of the big cap mining stock world. I am not saying one should buy KL now even though I had KL as my top stock pick for July as it is now just running away from everyone. But some mining stocks are just now breaking out. We are really focusing in on one such stock right now in my private Power Investor group. To get into my group just click here.
Disclosure: I own a position in the GDX ETF and Kirkland Lake Gold. I also recently recommended a small cap silver stock as a top seven trading position in my private Power Investor group that is now breaking out of long-term resistance.
-Mike
