“Don’t worry, be happy”

marley

Bob Marley sang these words may years ago. Lots of concern out there on the market – should we be worried?

While I’ve noted some concerns from a sentiment point of view regarding the prospects of a correction pending in the coming months (https://www.valuetrend.ca/?p=3489) – I’d like to suggest that the market likely still has some legs left in it prior to such a correction.

S&P nearterm

 

I draw that conclusion out of a few important considerations:

-S&P500 is consolidating within a potential triangle . The support level of 1970 (last significant low after the last higher high) has not been cracked.

-The index is holding over the 200 day MA (also near 1970). Keep in mind that a breach, should it occur, should be monitored on the weekly chart (which defines the larger uptrend of this market) for 3 weeks.

-The most important indication of positive money flow – the cumulative Accum/Dist. line, has flattened, but has not begun to round over. This suggests that money is not leaving the room just yet.

-Seasonality, while often unfavourable for ealy February, typically turns positive later this month.

 

I continue to view the current volatility as an opportunity to accumulate high quality positions. I expect to remain largely invested until the early spring. Thereafter, given the sentiment indicators I am watching, along with the 5 year cycle (last correction of 20% + was in 2011) – I expect to reduce my equity exposure.

 

I was on BNN last Friday. Here is the clip for my top picks:

Top Picks from Keith Richards – BNN News

8 Comments

  • Hi Keith,

    Thanks for the broad market analysis. I know you said don’t worry, but is this volatility normal? I feel like the intra day movements are quite strong and in my 2 short years of investing I do not recall this type of intra day volatility for almost a month straight (the month of Jan). Does volatility imply something in the markets?
    Regards,
    Eric

    Reply
    • Well, I think this volatility is a sign of a bear coming. But seasonals should give the markets one last push before the you-know-what hits the fan. Take a look at 2011–I think we’ll have a similar move as we did during the first half of that year. That year, markets were choppy early in the year, then finally topped in July – followed by a 20% ++ correction.
      I wont predict the exact timing here–but I would expect a similar pattern.
      So the choppy behavior is probably a sign of things to come, but I am not bailing out just yet.

      Reply
  • while in the library the other day in the current issue magazine section I noticed at least for front pages of magazines with oil as the subject and all were titled something similar to how low can oil go. Another was titled how low the loonie can go. Could it be we have seen at least a temporary bottom in both oil and the Canadian dollar?

    Reply
    • Hey Dave
      It may be that oil has begun its basing action, as described in my recent blog covering the last 3 oil crashes. I would be surprised if it rose out of the recent selloff in a “V”, as its typically been a complex base – I guess we’ll see. Yes, we may have seen the bottom, or the beginning of the bottoming process. There is also still a decent potential for another lower test nearer to $40–this may just be a counter trend move.
      I am playing it this way: it is way, way too early to be confident of a bottom – so far the action is encouraging. But I’ll give it a 2-3 more weeks – I’d rather buy higher than watch it fall after buying into a bull trap (if this is such a move). We have some exposure via 2 pipelines. I’m not adding more—yet.

      Reply
  • keith, re: oil, I just can’t get over the fact that while the price per bbl went from $100 to $50 Feb/14 to Feb/15, the price of quite a few oil stocks today is the same. VET was $60 then and now $60 today. this makes no sense – they did not adjust their business model in 1 year to be able to exist in half priced crude. are oil stocks wildly overpriced now??

    Reply
    • Most oil producers have fallen–its a rare exception to see one that has not declined with oil, albeit without the same degree of downside–but that works both ways (limited upside in an oil rally)

      Reply
  • I agree that oil is probably not going anywhere north of 60 dollars, likely range bound between 40 and 60. The increased volatility is making for some good trading opportunities in the short term.

    Reply

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