On Tuesday the S&P 500 managed to close a few points above its 200-day moving average. During a bear market this moving average tends to act as a big resistance level and in a bull market it acts as support. As I have been saying this year, I believe we are seeing the start of a cyclical bull market, due to the fact that the internals of the market have turned up. Most stocks are doing a lot better now than the Nasdaq 100 or the S&P 500, but a lot of people are skeptical of the idea that the market could do well this year, as last year was so awful and things are uncertain with the economy.
The stock market bears I follow say that the market cannot do well this year, because they predict that a credit event will happen, a debt disaster, or some other terrible event, but none of the ones saying this are specific about what they think will happen so I do not take it seriously. They just say something bad will happen, but I do not believe they have any solid basis for making such a prediction. This is a big problem in the financial media – where people get a view on the direction they believe the market will go and just think something will happen to justify it. This bear talk is no different than the technobabble nonsense of bull guru Cathie Wood and those that mimic her to cater to her followers. Yeah, bad things will happen one day, but there is no reason to assume anything like the bears are saying will happen this year.
They have provided zero evidence to justify thinking a credit implosion is coming this year.
None!
The thing is, most people don’t really look at the various sectors inside the market, but just the market averages. It’ll take a close above the resistance downtrend line connecting the highs of last year and the December highs to get more people buying the rally. Take a look at this chart and you can see what everyone is looking at.
In reality, most world markets (as priced in US dollars) have already broken out and are in full blown stage two bull markets. So is gold and silver. Take a look for instance at EWG, the ETF for Germany.
You can see how EWG has broken away from it’s 200-day moving average. The only way to buy it now is to chase.
A lesson to remember: notice how the EWG/SPX ratio went sideways in September and October.
This was a key moment in the markets.
When you see the S&P 500 and Nasdaq go down and an ETF or sector form a relative strength positive divergence as this happens you are looking at a future market leader.
The stocks and sectors that did that are now the leaders of this market rally and are likely to continue to be for the rest of this year.
I talked about this topic and two stocks I bought yesterday in a trading video update I did.
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-Mike
