Global Markets, the Fed and What Developing Tops Often Look Like

Published on September 20, 2017 @ 7:22am

We finally got leadership from tech yesterday, only second to financials on the day - something we've suggested needed to happen if these markets are going to continue grinding higher. However, now we've got the Fed today, so we'll say what she has to say about the Central Bank's multi-trillion dollar balance sheet.

Although anything is possible, we really don't expect any real significant change in the way the markets have been behaving. Sure, we could get some sort of knee-jerk reaction shortly after 2:00 PM EST, but it would take a lot more than that to get these markets to buckle based on what we continue to see from both a fundamental and technical perspective.

The bottom line is Wall Street has gotten used to modest growth, Yellen is the dove of all doves, and there's still no technical indication suggesting these markets are even remotely close to rolling over anytime soon.

The dollar continues to remain suspect with no clear reversal in sight yet. Following a failed reversal signal back in mid-August, we continue to see basic materials and even oil continue to trade much better on a short-term basis.

Both of our previously suggested ETF's in XLB and XOP continue to trade higher, so just make sure you're trailing those gains with some sort of protective stop loss you're comfortable with - as there's nothing worse than letting a nice gain turn into a loss.

At this point, everything continues to point to higher levels ahead. The primary ETF tracking global markets in ACWI continues to scream higher, and the NASDAQ continues to move higher following several months of volatile consolidation, both of which you can see in the weekly charts below.

We fixate a little more on the NASDAQ Composite - as we believe it's a better barometer for stocks in general. While the S&P 500 focuses on the biggest, the DOW also does the same from a broader industrial perspective, so considering the NASDAQ has everything from small-caps to meg-caps in various industries, we do think the NASDAQ is the more honest index of the three from a weighting perspective in terms of overall market behavior.

If there is a potential concern that could start developing, it would be the possibility of these markets running sharply to the upside. Why would that be a concern? Because any sort of developing tops are usually preceded by extremely long bars. Meaning, depending on the timeframe in question, the daily, weekly or monthly bars on major index charts start to get very long in the tooth, but it just hasn't started developing yet.

It's still a little too early to tell, but it's important we continue to keep a close eye on how these markets behave over the next several days to several weeks, because in the event they scream higher, that will end up being a concern. Until then though, we're still bullish on stocks.

Again, we're looking for a potential move on the S&P 500 to roughly 2,558, a move on the NASDAQ Composite just above 6,600 and a move on the DOW to roughly 22,600. No guarantees obviously, but based on the way the technicals are shaping up, we do see context there for a potential move to all three of these levels before year-end.

We'll see what happens on the heels of the Fed announcement today - as we don't really expect these markets to achieve those above mentioned levels in a straight line. In other words, a temporary head-fake back to the downside is entirely possible considering all of the major averages continue to trade in new high territory.

Actions To Consider Today:

Trail any substantial gains in any individual ideas with protective stops.

Hold XOP and trail gains with a protective stop no lower than your initial entry point.

Hold XLB and trail gains with a protective stop no lower than your initial entry point.

Individual Company Updates:

None

If you have any questions or would like further details regarding any of the information provided above - or anything else you're thinking about buying or selling out there - please don't hesitate to call your Rep . at 619-369-9316.