E Three Charts Explain Where Stocks Are At (And Are Likely Headed)

In exactly two weeks from today the dreadful US presidential campaign will finally end and with it the seemingly never-ending drift in global equity prices should end and the historically relevant rise post-election should take hold. Moreover, data showing improving sub-sector performance improves the odds of a post-election rally. 

What should not be forgotten, however, is the longer-term trend, which the second chart illustrates quite clearly that since the equity market’s low in March 2009, the US has been on a very good run while the rest of the world has been far less so.

This divergence is a worrisome sign but that worry has to be superseded by the price action in the form of the Mega Trend, which, as the third chart shows, is solidly bullish.

While momentum (MACD) has deteriorated (red arrow) and must watch closely, price and its moving averages (Mega Trend) remain positive (green arrow).

Until this turns negative, the trend remains bullish. That being said, it must be noted that twice in the recent past (mid-2015 and early 2016 – yellow arrows) price did break below its moving averages, the moving averages crossed (to the downside) and the slope of both moving averages turned downward: the conditions for a Mega Trend reversal. At that point, the clock was ticking (3-months time) for this to be a false signal, which turned out to be the case as price and moving averages turned back upward.

Investment Strategy Implications

The abnormal conditions – economic and monetary – that global financial markets find themselves in are represented quite well in the abnormal geopolitical conditions most notably exemplified by the dangerous farce that is the US presidential election. Distortions abound in just about every conceivable area of life in the real and financial economy. Yet, the patrons of Wall Street (the investment professionals) insist on their methodologies, for to do otherwise is to risk career suicide. It is, therefore, better to fail conventionally than to succeed unconventionally¹. This is reflected in the market intel you see above. And so it goes.