One of Wall Street’s best know old-saying is, “Never short a dull market”…and that has certainly held true over the last month or so. Since October 15th (after we saw a sharp 3.6% spike off of the October lows over just five trading days), the stock market has been quite dull. We have not seen a move of more than 1% over the past month…after seeing five such moves over the first two weeks of October. However, we’ve had a lot more “up days” than “down days” (17 up vs. 7 down)…so although the average moves have been similar (+0.33% vs. -0.23%), the net move has resulted in a nice rally of 4.2% since mid October (and more than 8% since the early October lows). Therefore, even though the market has been quite boring, it has obviously still been a good one.
Then again, given that the market seems to make new record highs every other day, it’s hard to call it “boring” one. However, with the exception of two trading days (November 1st and last Friday, the 15th), the S&P 500 has not even come close to moving 1% on any given day. So the intraday activity has indeed been quite boring…especially over the past two weeks (when volume has dropped considerably)…….With the stock market getting pretty overbought, it’s not a surprise that the activity has died down. It’s hard to chase the market after such an 8% rally over 6 weeks…in a year where the stock market has already rallied SO strongly…so it makes sense that this rally has become much more gradual on most days.
This is a long winded way of showing that the reason this market continues to rally is that NOBODY IS SELLING!!! In other words, even though investors are reluctant to “buy” in a major way after such a nice rally, NOBODY wants to “sell” at all. This is especially true for institutional investors. It has been a great year…and the market continues to rally (and it has done so WITHOUT A MAJOR SEPTEMBER/OCTOBER SCARE)…so they cannot afford to take any chips off the table as we move into the last six weeks of the year. Yes, some “rotation” takes place from time to time, but for the most part, “new money” is put to work and nobody is selling…so the market creeps higher.
Ok, now that we’ve explained why we think the market has continued to move higher at a slow/steady pace recently…what do we think will happen next? Well, this theme could continue…and we’ll continue to creep higher all the way until the end of the year. The problem is that if we see the same kind of move over the next six weeks…as we have over the past six weeks…it’s going to take the market to 3,400. (Some pundits are saying this is possible.)
Of course, anything is possible, but if we DO continue to see a similar type of rally into the end of the year, that’s going to take sentiment to ridiculously bullish levels…and take us into the New Year with an overbought condition that hasn’t been seen since early 2000!!!……However, the real question is whether the economic growth and earnings growth we’re seeing right now (AND what people are calling for in the first half of 2020) is enough to take a 32% rally off the Christmas Eve lows from last year…to a whopping 44% rally by the end of the year? We do not think so…even if we get a Phase One (skinny/mediocre) trade deal…and we believe investors should act accordingly.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.