The rally that we saw in the markets, starting in October, has been like no other since New Years of 2022, when the stock market averages turned down to begin a new bear market. This rally has been different, because it has been spurred by broad based buying inside the stock market that has turned the market internals up. Yesterday, the internals confirmed the rally again, by making a new high.
By internals I am talking about the percentage of stocks inside the NYSE trading above their 200-day moving averages.
When the stock indices rallied in 2021 the internals peaked out in April and June and then began to go down. What this meant is that most stocks were going down while the Nasdaq and S&P 500 continued higher, being pushed up by a few leadership stocks. This negative divergence in the internals was a classic warning that the market was going into a bear market or at the least a 20% or more correction and it indeed happened.
It was pretty obvious, because some sort of interest rate hiking cycle was coming in 2022.
I was able to point out to everyone what the internals were doing in 2021 and I went to 50% cash myself that summer and began to hedge by the end of the year.
I was bearish throughout 2022.
Now my views are shifting, because the internals have turned up and are now confirming the rally.
I suspect we are starting a short cyclical bull market within a secular bear market.
I’ll explain this more in a follow up video this weekend, but I’m not looking for the market to go back to the way it was before 2022, but instead to trend up to sideways for at least a few months, and hopefully through the rest of this year. Perhaps the market can have an overall bullish underlying trend going for it into next year’s Presidential election. Much will depend on how much inflation really does drop and more importantly how long the Federal Reserve can keep interest rates locked around 5%. The longer it can just sit there after the last rate hike the better it will be for the stock market.
Look for Nasdaq stocks to rally here for a bit, but to end up badly lagging the S&P 500, much as they did last year.
The real buying is not happening with those old leadership fad stocks, but in many more stocks, such as industrial stocks, minerals, defensive consumer staples, restaurants, and more. Institutions are not piling into things like TSLA, but into stocks of companies with stable earnings that pay dividends.
Now REIT’s are coming alive, as you can see from the RWR ETF, which hold real estate investment trusts.
The RWR ETF was a leading sector in the market after the 2020 crash, until it peaked in April. It came down hard, but now you can see its relative strength index has firmed up since the end of November and is in a position where it could breakout. REIT’s tend to fall during a time of rising interest rates and go up when rates stop going up and really go up when they remain below the inflation rate, which could be what ends up happening.
I actually bought these REIT’s on Wednesday.
STAG is paying a 4.20% dividend.
LXP is paying a 4.50% dividend.
EPRT is paying a 4.58% dividend.
SPG is paying a 5.93% dividend.
On Tuesday I did a video about several other stocks now outperforming the market, paying nice dividends.
In case you missed that video you can find it here.
To get my next free stock trading email update go here.
-Mike
