Chart Review: Sentiment And Longer-Term

The Longer-Term Outlook

The Packaging index is super-sensitive to the ups and downs of the stock market. It shows the market pullbacks very nicely, and these dips along with the stochastic lows have been good buying opportunities. Based on this chart, I would expect a rally in the general market.

Very few stocks have been hitting new 52-week highs, and this trend has to reverse in order to get a sustained market rally… otherwise, if we do get a rally, it will fizzle out quickly.

The Dow Diffusion Index is at a very low level that compares with the selloffs in 2015. The combination of the low level of this index, along with the Industrials being near support, I think favors the view that stocks will rally.

The Semiconductor ETF is still headed higher despite some choppiness. Bullish for the general market.

What is happening with Inflation? 

Oil looks like it is headed higher, and without higher oil there is no way you could convince me that we have inflation.

The CRB has moved sideways along with stocks. This index is dominated by oil, so I think it means the other components haven’t been moving higher lately.

I don’t know where copper prices are headed based on this chart.

This ETF of inflation protected bonds is now headed lower. 

Bottom line: The indicators of inflation are mixed. We had a whiff of inflation last year, but that now appears to be cooling off. This means that we need to be cautious about the assumptions that short-term rates are headed higher.

Outlook Summary:

I am expecting a choppy, headline-driven, sideways market between now and the November elections. I still plan to buy the dips for short-term gain, but over time I plan to continue to reduce my overall exposure to stocks.

The expected US economic growth rate is back down to the 2% level.

Once again, the problems in Europe related to debt and the banking system are serious issues.

Something else to consider is the Mueller investigation. I worry that the headlines generated by the investigation may rattle the markets more than people are currently anticipating. 

Based on market seasonality, Mike Burk is projecting a medium-term stock market peak in May which sounds about right to me.

I have been operating on the assumption that we have been experiencing mildly higher inflation, but the indicators are not behaving correctly. I still worry a lot about these insane Federal deficits, but maybe it will play out differently than expected. So I am removing, or maybe re-wording, the following statement.