The nervousness surounding the current bull market remains significant. While there are a number of unsettling indicators suggesting a serious correction at the very least, one chart from Jill MilMislinski of Advisor Perspectives really puts this Bull Market into perspective.
This chart from 1871 shows the gains that each bull market made from its lows ranged from +334 in 1906 to +666 in 2000 for an average gain of +415%. What is remarkable about this chart is that it shows that we have only gained +181% from the previous bear market low in March 2009, suggesting that the market is no where near a market top, or as wildly overbought as many think. For more from Jill on this topic go to A Perspective on Secular Bull and Bear Markets
That said, it has been quite a while since we have had a significant correction. The US Dollar is the one thing that concerns me. On the chart below notice that the US stock market has gone up in lockstep with the declining US dollar since the presidential election. Also note that 2014's big surge in USD preceded the 2015 corrective phase in the stock market. Right now we have a significantly oversold USD at lateral support. Judging from this chart, a rally in the USD here would likely trigger a reversal in this phase of the stock market bull. If nothing else, at a minimum this chart alone argues we are on the brink of a significant correction.
Diverging Dows. The Dow Industrials continue to power to new all-time highs day after day, while its brother index, the Dow Transports, fall almost as consistently. The Transports are down 6% since mid- July and within spitting distance of its 200-day average. While this divergence can be interpreted a number of different ways, I just think it is another subtle warning that all is not right with the market at the moment. For more on the Dow Theory read Richard Russell's "The History of the Dow Theory"
“According to the latest AAII survey, individual investors are now holding their lowest cash allocation since 2000. “They are now among the most invested in financial markets since 1988, while those markets are near historic levels of overvaluation. The three other time periods with the lowest cash allocations, in 1998, 2000, and 2015, all preceded times when those investors probably wished they had more of a cushion.”
In the same vein this chart by Sentimentrader reinforces the extremely low cash allocation scenario. Both these charts argue a strong condition for a correction.
In last weeks’ market action a change occurred and profit taking rotation out of the high-tech sector rotated into the Dow Industrials. This change seemed to reflect a more defensive approach of being invested in “Blue Chips”. Sector rotation increased especially noticeable in the transports and technology sectors that were leading the markets higher. If they continue lower, more sectors will join the decline.
I am taking profits on 1/3 of my outstanding stock position, moving to a 2/3 long position in the S&P 500 in anticipation of a market correction.
Previous recommendations where to go 1/3 long on January 30th during that Monday's range of 2263.00 - 2285.75, to a full long position to be initiated at the market opening April 3rd at 2354.00.
If we get any correction from the current 2474 level of the S&P 500, it will be nice to have some powder dry.
Regarding the Wheat trade, it has been a wild ride from the $432 level up to $575 and back to its current $465. Maintain the long position looking for a re-test of the recent highs of $575.
Maintain all long positions in Gold & especially Silver