The big question here is whether this stock market is heading for the inevitable bear market. Twitter gurus will have you thinking this is the top and we are headed for gloom and doom. Hard to blame people when they are hardwired to be fearful. While we will not argue we are stretched a bit to the upside, but we will not call for the absolute top of this market. Where is the massive distribution? Do we have leading stocks getting slammed? Yes, small caps stocks have yet to lead. However, the broader market continues to act well as we proceed. Even a small pullback would not be surprising to us here and given Thanksgiving is next week it is almost a positive we see some bit of selling. We will not guess where this market is going to go or not go. Follow leading stocks. Deploy a robust risk management process. Stick to facts and leave emotions behind. Until evidence suggests otherwise the long-term trend remains in place.
In the near term, the 10-day moving average will serve as a nice indicator for the overall market. Shifting to IWM we see that this ETF has set up in a flag pattern. Now, we know the ETF has failed to break out in either direction. Fair point. However, we cannot ignore the bullish pattern emerging. Keep an eye on IWM over the next few days. It would not surprise us to see investors jump aboard the IWM train if it breaks out. Many growth investors have been waiting urgently to see investors become less risk adverse by allocating more to small cap stocks. As the old saying goes: Time will Tell.
We talk about investor sentiment via the AAII and NAAIM surveys, but an interesting development in the money market world is quite curious. Money Market balances ending October 30th, 2019 hit a post March 25th, 2009 high. The stock market is at all-time highs and Money Market balances just exceeded the levels not seen since the financial crisis. Now, rates on Money Market funds have risen since 2009. However, they are not robust by any stretch of the imagination. Are investors that fearful this market is on the verge of another collapse? A stock market crash like we say in September 2008 will likely happen at some point in the future. When? There is NO ONE on this planet who could predict when it would occur. Food for though. There is plenty of dry powder on the sidelines to continue this rally, but the question is does it come off the sidelines or stayed parked?
Sticking to price has its advantages. We don’t have to spend hours trying to figure out these questions. Price alone is the ultimate indicator and we will continue to follow it. We hope you have had a great week of trading thus far and wish you luck today!
