MARKETCYCLE WEALTH MANAGEMENT
Published on Sunday, June 6, 2021:
This post represents my opinion and no reader should attempt to trade or invest on their own using the enclosed information. These are near-term projections and MarketCycle’s investment stance can change based on our advanced & proprietary system of indicators.
We are currently in a brand new 8-ish year long Cyclical stock bull market that started in late May of 2020 and it was generated within the confines of an ongoing 18 year long Secular stock bull market. The market can’t help itself, it wants to grow when bullish conditions exist and this bull market has years of wind left in its sails. We should see at least two big corrections between now and 2029 and MarketCycle’s unique and proprietary system of indicators is designed to protect clients from that. If we are not entering an actual bear market but risk is increasing regardless, then our goal is to move toward neutral.
Every day of my life I do an extensive market review. I try to let go of my opinions and predictions and just look at everything with fresh eyes. This is what I saw this morning, in no particular order:
- Growth stocks still lead value stocks in long-term relative strength studies, although value will be slowly strengthening over the next decade. Momentum is a good way to play this as it will pick up the strongest of both categories.
- U.S. stocks still lead in relative strength over all other regions; developed markets and emerging markets are overbought and are weakening, although the United Kingdom and some emerging markets still do show strength.
- China stocks are weaker than are the much stronger India stocks.
- Japanese stocks are still bullish but it makes one worry when Japan’s central bank (Bank of Japan) is holding up the market by purchasing and holding almost 10% of the Nikkei stock market.
- Breadth of momentum and general index breadth are both very strong and across all cap sizes in the United States, so the bull market is broad based.
- U.S. small-cap stocks now show increased momentum, increased accumulation interest, are not overbought and are about to (soon) break out to the upside from a 4 month sideways consolidation.
- Breadth of technology stocks has now shifted again to bullish and it is showing signs of a coming break out from a 4 month sideways consolidation (but likely after small-caps break out).
- Divergences across the board are pointing to very bullish conditions.
- Sentiment has now shifted once again to “excessively bullish.” This, along with excessive margin use and a weakening in high-yield bond relative strength are about the only things sending warning signals, so they can be ignored at least until the S&P-500 hits 4500.
- The U.S. consumer is still in very good shape, which is bullish, and there is still $1.5-Trillion sitting on the sidelines and desiring to come into the market.
- Inflation continues to strengthen across the globe and there is no way that this high level of inflation dissipates anytime in 2021.
- MarketCycle’s indicators suggest that, despite inflation, the Federal Reserve may still remain on hold through all of 2021. They are rapidly selling their 2020 corporate bond ETF purchases and they are already secretly tapering and they will soon start to ‘talk’ about the necessity of interest rate increases.
- Bonds are oversold and remaining above very strong support and MarketCycle’s proprietary “Bond-buy Indicator” triggered several months back although bonds are definitely not a good play longer term. The ETF with the symbol of TLT may soon go from 140 to 144. The problem is that during stock market dips, bonds are no longer rallying; they are no longer offering the same level of protection against downturns (which is the main point of holding them). However, during bad downdrafts Treasuries should still rally.
- U.S. high-yield bonds are showing relative weakness as compared to Treasury bonds.
- Treasuries are showing relative weakness as compared to TIPS (Treasuries Inflation Protected Securities).
- REITS (Real Estate Investment Trusts) are showing bullish technical and fundamental strength. The residential REIT that MarketCycle holds is paying 6% interest and we bought it at an extreme discount to NAV (Net Asset Value).
- Convertible bonds are stronger than are preferred shares.
- The USDollar is holding above its secondary level of support. It does not have much of a reason to go either up or down; the temporary near-term direction is likely sideways, as it is for the EURO and the YEN. Emerging market currencies may catch a bid higher.
- As I cautioned, Bitcoin is now in a bear market. While I may be wrong, I expect it to drop all of the way down to between 12500 and 6500, and very likely all of the way down to 6500 where it may ‘sideways base’ all over again, waiting for a new batch of youngsters to get excited. Bitcoin is in no way a usable ‘currency’ because it is way, way too volatile; it remains an expensive and fairly un-usable computer digit on which people can speculate. NOTE: For some reason, when reviewing this post for errors prior to publishing, that last statement reminded me of the “invisible scuplture” that recently sold for $18,000. I guess that the good news is that the delivery charges for the invisible sculpture will be cheap.
- Some of the money withdrawn from Bitcoin will naturally rotate toward gold, which is tangible and real and actually protective against inflation.
- Gold remains above both its 3 & 5 year support lines and it is no longer overbought but, while bullish, it is still not showing excessive strength. This indicates that the recent inflation spike is likely to not be permanent… it is just a prelude to ‘things to come’ much further down the road.
- Energy, industrial and agricultural commodities are showing real strength. MarketCycle uses a particular commodity fund that has no complicated K-1 tax form, it offers reduced taxes, it generally pays some interest and it does not include killed animals as “commodities.” A lot of people no longer want to invest in things like “feeder cattle.”
SUMMARY: Likely near-term directions = all U.S. stocks strong and up but when the S&P-500 hits 4500 it might take a temporary ‘relief’ break. Stocks from other regions are relatively weak as compared to the United States. U.S. bonds will catch a bounce up (and rates down). USD and EURO and YEN currencies to gyrate sideways but emerging market currencies may catch a bid. Gold is still strong and it should be in portfolios, but currently at an allocation of ‘more than 5% but certainly less than 10%.’ Commodities are going from strong to stronger. We are in a corporate earnings boom which should last for at least another 9 months. There is money sloshing around everywhere and this will stimulate both the economy and the stock market over the next year and I’m quite sure that even more money will be thrown at the economy as the year progresses. In my opinion, we are in the multi-year stock bull market of our lifetimes (although any bigger corrections of overbought conditions will still need to be avoided in order for portfolios to excel).
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