Market rally may continue, but beware the “niggles”

September 29, 20208 Comments

I own an older model Porsche. I like it because its a purist car – a true drivers car for those who want absolute connection to their vehicle. Manual tranny (essential for the purist driver) with a short shifter and race clutch, hand brake for drifting at the track (should you choose to do so), minimal weight without all the modern toys, minimal driver aids, and a steering wheel with no buttons. Even my daily driver is the last of a dying breed – its a sports sedan with manual tranny, hand brake and stiff suspension. Minimal luxury, that’s my game. No third pedal = not the car for me.

My friend is the polar opposite of myself from a driving perspective. He has a big German cruiser. Its got horsepower, but that horsepower has to pull 1500 lbs more than my Porsche, and corner with that bulk. Tons of drivers aids, a computer in the dash that defies imagination (he can choose from essential oils for the incoming air vents).  We laugh about our driving style differences.

One of the things about owning an older enthusiasts car is that they all have “niggles”. That’s what a car magazine I recently read called them. For example, the Porsche burns a bit of oil. So I have to check the oil level after about 5000 km and add half a quart. The engine is in the back, so it wears rear tires out like nobody’s business with all that weight upon them. And so on.

Why mention all of this car stuff? Well, first of all, I’m going through seasonal remorse, seeing as the dreaded day of winter storage is only 2 weeks away (sob!). Writing this was therapy. More important for you is understanding that the market has niggles too. Its like an older car. Stuff happens, and you have to deal with it if you want to be an equity (or enthusiasts car) owner.

Right now, we have a technical setup for the SPX to return to 3500 or so. The chart below is one I use for short termed timing insight. It provides evidence for neartermed moves. Testing an upper or lower Bollinger Band with a subsequent hook on stochastics and (even better) RSI typically suggests a bounce to the upper band is likely. That’s what the setup is right now. We recently saw a bounce off of the lower BB, and a nice hook on stochastics. RSI is hooking, albeit not from an oversold level. That indicates a rally, but not a big one. A target of 3500 comes from the top BB level. That’s a 5% gain from here.

The niggles on this rally are threefold.

First, we have that seasonal thing when it comes to October. October is actually not a statistically bad month insofar as most Octobers are actually bullish, according to Brooke Thackray’s “Thackray’s Guides“. But its the month that when things go wrong – they go REALLY wrong. So what could go wrong? Well, there’s that debate going on where the Democrats want something like $2T in stimulation in the next bill, while the Republican’s want $1.5T. Will either get their way or will the stimulation debate delay anything happening?

Next, there is that election thing. Markets may be bullish during most Octobers, but they are particularly vulnerable in Octobers coming into an election, statistically speaking. Check my prior blogs for the stats.

Finally –  Markets are not oversold on the more important time frames like the weekly charts (see below). MACD  (second pane from the bottom) is just starting to hook down – a bearish sign for the mid-termed picture. This suggests that a bounce to 3500 is not likely to repair the bigger overbought picture.

As Technical Analyst David Chapman notes in his typical tongue-in-cheek manner: “It is 36 days to the election and the number of coronavirus cases are rising, global deaths have passed a million and an incumbent president is hinting he won’t leave office even if he loses because the election is a fraud. What could possibly go wrong?”  Actually, its not just Trump who might call the vote a fraud. Biden has uttered the same sentiment. Things like this can only cause market mayhem until settled.

Bottom line

My thoughts are that the market will move into 3500 or near enough to it. But I am not convinced that the move will be very long lasting. I’m not looking for any long lasting bullish move until the election is behind us. Whenever that happens…

8 Comments

  • How do you believe the housing market will be affected by COVID, massive financial stimulus (national debt) and personal debt, and elections…even though interest rates are close to zero. Do you see a housing correction or game on and continue to rise ?

    Reply
    • Alex, I think this is a tough question to answer. I read some research by a couple of smart institutions who predicted Canadian real estate would go to hell and a handbasket by the fall. Well, here we are with higher than ever prices….people moving away from the city now that commuting distance to their Toronto/Vancouver etc office tower is not a factor, along with low rates etc.
      Those who have money have more buying power with low rates, those who don’t are getting government CQ’s.
      I feel that Canadian real estate is like the FAANG bubble. It ain’t over until the fat lady sings as newspaper writer Dan Cook once said.
      But when it ends, it ends. An overleveraged consumer buying overpriced assets sounds like an eventual problem, but it could last a while yet!

      Reply
  • Keith , Canadian Banks continue to struggle with low net margin interest rates along with consumer debt load rising … however at 5% + dividends makes a compelling story for a senior just looking for income in a non -registered account .
    Do you own the Cdn banks at this time or are you waiting for a further decline ?

    Reply
    • Excellent question Don
      We hold banks in our ValueTrend Income Platform – an ETF, actually. But we don’t hold any in the ValueTrend Equity Platform. The Income off of the big banks (dividends) remains secure at this time. So it fits the needs of our Income Platform… But the technical profile of the group shows very strong resistance for most of them coming up – meaning very little upside for capital gains. So – speaking from our own portfolio holdings–we are confident banks will continue seeing that 5% dividend for the foreseeable future, despite the lousy environment they operate in – as you mention. But the technical resistance observations suggest the same thing that your fundamental analysis observations suggest– little reason for much capital appreciation.

      Reply
  • “Hi HO Silver”, I want to be wrong about this, but lets say Trump maneuvers his way back into the Whitehouse. Do you think people will jump off roofs or flock to gold? What’s the best silver play?
    Thanks oh learned one. Dave

    Reply
    • Dave–research suggests there is no real downside to either party getting in. Do a search in the blog search engine and you will find that I’ve quoted a whole bunch of research on electoral patterns. Basically, the market has historically sold off into an election based on uncertainty – not on “this vs that candidate” fears. Once its done- we move on. No matter who wins. You could discuss sectors that will be positively or negatively affected. For example, healthcare will underperform in a Biden win, Tech will continue to outperform with a Trump win. But in either case, its a rotation of money or a “stay the same” situation. Re gold–I think that’s a good play based on inflation, which is likely to happen no matter who is in, given the money printing. Silver can follow in golds footprints a bit. We hold one silver stock in the VT Aggressive Platform, but in the VT equity Platform we have no silver, but a pretty decent chunk of a gold producer ETF. We feel its the safer bet – hence the difference between the platforms.

      Reply

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