Current Market - Mid-month Update
When it rains it pours - in my last letter a apologized for skipping February, but here's my second letter to you in March. Yesterday's developments in the US stock market are prompting me to send it.
I published the following chart and text last night in SpikeTrade. That's where my co-director Kerry Lovvorn and I post daily updates (along with a lot more).
Click here to enlarge this chart (only when you're online)
On Wednesday the Fed hiked the key interest rate a 1/4 point. It also indicated that two more increases are very likely in 2017.
A pretty automatic response of most economists to such news would be that rising interest rates push stock markets down. Some may roll out an old rule that worked well in the 1960s - "three steps and a stumble," meaning that the market stumbles after the third increase of interest rates in a row (today was the 3rd increase since 2015).
But the market doesn't read economic texts, it has a mind of its own. After hearing the news the market rallied - up 20 points for the S&P, 42 for the Nasdaq, 113 for the Dow. A rally in response to fundamentally bearish news means only thing - this market wants to rally.
The first thing that jumps at us from this chart is a fresh Spike Bounce signal. A reminder: it occurs whenever the NHNL in the monthly look-back window rallies from below minus 500 to above that level. Yesterday our monthly NHNL sank to a minus 792; today it rallied to plus 131 - Spike Bounce!
Looking at the longer-term NHNL we see this indicator in its bullish zone in one look-back window; neutral but rising in the other three that we track. There is a convincing set of bullish divergences in all three daily windows (on the right). Turning to the weekly window (on the left), while the bearish divergence is still there (red arrow), the weekly NHNL is rallying from its zero line. This rally as well as the previous ones are marked with green arrowheads.
This bull market began in February 2016 (which we caught very nicely in SpikeTrade) and received a huge boost from the outcome of the US Presidential election. Some people love the new guy, others hate him, most of the media is out for his scalp big time, but nobody doubts one thing: that the country got the most pro-business President in a generation.
The fact that the market roared up and away after a rate increase is a wake-up call for all of who treated this as a normal garden-variety bull market, with orderly rallies and declines. This market is on fire, and we better be in gear with it.
Of course this bull market will not end well - no bull market ever does. But years of experience convinced me that we have the level of sobriety to begin sounding warnings when we think we see a top being formed. We'll ring the warning bell when it's time (or perhaps a little early).
Now is the best time to join our webinars. Joining for a month will allow you to catch the session on March 22 in which Dr Elder will focus on promising but undervalued stocks. You will receive a full month of his weekend divergence scans. You will also receive access to the next session on April 12.
In the previous letter I shared my plan to buy EWW, a Mexico ETF. I pointed out that some 40% of the value of Mexican exports to the US consists of inputs bought from the United States. "Even though Mexico is losing some earlier planned factories, the US would be hurting its own economy if it cut imports from Mexico - and that our businessman President is highly unlikely to do."
That fundamental outlook was confirmed by a rich set of technical buy signals, both on the weekly and daily charts (please review the January letter).
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