On the one hand….

David Chapman, another Technical Analyst and a man who I respect, noted in a newsletter that there are a number of factors that look pretty bearish for the stock market right now. These include:

  • An expanding pattern on the NA indices (as I noted back in October)
  • Inverting yield curves
  • Negative yields on bonds in 12 countries (!)
  • Ongoing trade wars
  • Military activities on the Russian border and S/E China seas
  • The ongoing potential for natural disasters due to climate change


AS Mr. Chapman noted: “It takes many years for a speculative bubble to build. It can be wiped out in a very short time….The warning signs are there. But are they being heeded?”


I do not dispute MR. Chapmans observations. However, I have the feeling that we are likely to continue a bullish pattern (neartermed volatility aside) until closer to the US election period next year. Thereafter, perhaps anytime between next summer and year-end,  I believe Mr. Chapman’s concern’s may have more potential to come to fruition. Here are my technical thoughts that might imply some neartermed (1 year) upside for the markets:

  • A recent (July 26th) higher high on the market, with no new lower low, despite the recent pullback
  • Adherence by SPX above the 200 day SMA
  • A rising put/call ratio that is getting closer to the “fear” buy point.
  • Meanwhile, a more normalized VIX (fear) level after July’s “complacency” signal (see my Bear-o-meter report in July’s blog)
  • The recent normalization of overbought market conditions (momentum and breadth-momentum)
  • Cumulative breadth (A/D line) remains bullish
  • Cumulative moneyflow remains bullish, despite typically lower summer volume
  • Don’t fight the Fed. Futures are now pricing in 110bps of rate cuts between now and the end of next year. Yes, it’s a drug that provides only a temporary high if stimulation doesn’t work and earnings aren’t there to support the cut. But still…don’t fight the Fed. For now.
  • Bear-o-meter has moved from a super high risk “0” rating to a cautious, but not super-high, “2” rating per this blog


Despite the market malaise of late (which we wrote about in our latest ValueTrend newsletter – feel free to subscribe to it by clicking here), I’d give the market a good chance of rising into or after the fall. A bullish trend over the winter and into next year may be the last leg in this bull market. Or not. The beauty of technical analysis is that we don’t need to make predictions beyond the near-term. For now, things are rocky, but the trend is weakly bullish. So we can stay the course. We can change our outlook if the market tells us to.

I’ll be away next week but will answer comments up to this Friday August 16th. Last vacation (end of July) ended up with a 5% market pullback. Here’s hoping I don’t jinx it again!


I hope I can meet some of the readers of this blog at my MoneyShow presentation: September 20th at 4:15 at the Metro Toronto Convention Center

Don’t forget to register for the MoneyShow ahead of time and miss the lineups. Here is the link to my presentation, and registration information.



I’m writing this addendum one day after I wrote the above blog. Here we go again today–with more selloff after a positive day yesterday on the markets. This adds credence to my “trading in a box” comment in my last “Ask me anything” blog, which you can link to here. The market is fairly range bound at this moment. In my opinion, one catalyst that might spur the next (and who knows..final?) leg of the bull will be a finalized trade deal by Trump with China. Below is a comment written by Larry MacDonald of Bear Traps – whos’ research we subscribe to, and respect. The way I read this comment, the thought is that the US has little choice but to crack the deal sooner rather than later:

Trump can do 2 things….

Either be forceful on tariffs, push US into recession and get Warren or Biden in the White House. That will surely leave China as the victor. Or back off now, try to win and come down hard on China in 2021. Today’s action by the WH appears weak and on many fronts, looks bad. Either weak or a backtrack. Had this been announced first, we would have more pressure on fed and financial conditions (FCIs) would be more contractionary. The backtrack is actually wind at SPX’s back. And you still have 25% tariff on 50% of Chinese imports which are fairly easy substituted with non Chinese equivalents.


  • Thanks Keith for your usual great commentary.
    David Rosenberg of Gluskin Sheff may be considered a bear but he is one of my most respected economists and his comment such as a recession is not even close to being priced into the stock market appears valid. Reminds me that sometimes Cash is King. This may be one of those times!

    • Indeed Don- we hold 17% cash in the Equity model, and another 35% in defensive stocks like REITS etc–but our thoughts are that this noise on the market is just another point of volatility like so many others we’ve seen–particularly in the past 18 months. The interesting thing is that after each bout of volatility (which seem to last about a month, at least they lasted about that long in the three prior bouts since January 2018)–there is an opportunity to spend that cash at a lower point. My (murky) crystal ball suggests the oversold “buy” point may just line up with the seasonal buy point. Any time between September and early November. That may be the last kick at the can, though. So we hope to make the best of that potential rally.

  • Keith and Don,
    S&P will continue to climb this ” Wall of Worry” until at least mid Sept.
    Jackson Hole will provide a pop and slight drop at the end of this week….
    sideways till the end of the month ….then up till mid Sept.
    Now is NOT the time to be in cash

  • Einstein said it best: “Insanity is doing the same thing over and over again and expecting different results.” I think this statement best sums up the Bear-o-meter. It goes up and down erratically, to and fro so much that it’s head spinning. Perhaps there are better metrics to quantify human behavior in order to gain an edge so that one can be on the positive side of this zero sum game. I respect your intellectual honesty and appreciate your insights. But in the end, this seems like a lot of toil for the additional alpha, if any, that may be generated. BTW, the S&P 500’s compounded annual growth rate (CAGR) is a little above 7% since 1970. Not considering yearly averages and standard deviations of your own portfolio, I wonder what your overall lifetime CAGR is. Afterall, money earned through time is really where rubber meets the road, not the constant toil of “reacting” technically to a lot of noise. Ironically, a lot of blogging on here actually is the business of anticipating instead of merely responding to technical information. Anticipating the market’s moves seems, as previously mentioned, a head spinning, toilsome exercise. I will end it on this note; thank you for your insights and your blog. I can tell from your readings that you are a good man.

    • Thanks David–really good comment. Its true–we try to anticipate the future by using the past. The Bear-o-meter is NOT a timing device–if you search it in the past on the blog, you will see that I emphasize its use as a tool to assess risk/reward. Not entry/exit decisions so much. The readings help make that decision, but do not on an isolated manner make the decision. An analogy: You are planning a corporate picnic. It must be cancelled if it rains, but that could cost you money as you have to pay cancellation fees to the vendors. On the night before the picnic, weather report says 60% chance of rain. Do you cancel? The weather report is the Bear-o-meter. It cant say for sure. It merely reads the potential for risk (or rain). End of the day–weather reports and Bear-o-meter is pretty good, but not something to be used without making the decision with other considerations.
      Thanks again for the great comment.


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