Thoughts {03.24.16}

Stocks have begun to trade sluggishly, with the major US indices on the verge of posting their first weekly declines in six weeks.  That can't be too surprising considering per our post yesterday that stocks have rallied right into that major level of resistance that's been in place now for well over a year. Mix into this the fact that we are very overbought and you have the recipe for a market where probability suggests at a minimum we mark time and consolidate the most recent gains.   

One thing the markets seem to have taken in stride was this week's tragic bombings in Brussels.  It is difficult to say this but the investing world seems to have hardened to this sort of thing.  That's not to try and minimize the carnage or the impact this event has had on those who experienced it or on the people of Belgium. However, once markets figure out there is no direct or substantial economic impact, they seem to go about their natural way.  That's not to say there's not some impact but since there was no follow-on to this event investors discounted the news and moved on.  Perhaps it shouldn't be this way but it is the way of humans when it comes to money.  As they said in the Godfather, "nothing personal but this is business".

Finally back to the markets, the debate right now among the media gurus is whether what we've seen constitutes a market consolidation, market top, the beginning of the next leg of the bull market or a bear market rally.  We have no idea which of these views is correct, although we laid our our most probable market scenarios back in February.  We simply let our indicators be our guide.  Right now those are saying overbought and we react accordingly.  I do know that if you are an investor that thinks the markets have experienced nothing more than a bear market rally then you have been handed an extraordinary gift as the markets have fought back to virtually even on the year.  If you're of that mindset then you should take this opportunity to de-risk your portfolio if you have not already done so.

If you're of the mindset that this is a consolidation before we head higher and are inclined to be a buyer into this small amount of weakness this week, then know that the market internals may not be in your favor in the short-run.  That is you may get the opportunity to buy the market lower in the weeks ahead.  Now I'm not saying that's going to occur and for all I know stocks will simply rocket higher.  I don't give out investment advice on this blog and anything you read here should be discussed with your own advisor or used in the context of individual research you will do on your own if you are not clients of my firm.  That being said, I do think investors should know the lay of the land.  I think investors need to be aware of what charts, money flows and history say happens in when this kind of set-up has occurred in the past.  That map is saying we're overbought and historically in these situations, stocks at a minimum have wanted to rest.  Of course it could be different this time but often in the past it is not.   No matter the environment, investors need to know themselves, know their individual appetite for risk and invest accordingly.

Markets are closed tomorrow for God Friday and the Easter holiday.  I will be out next week, so posting will be sporadic.  Look for us back here on a consistent basis the first week of April.  Until then for those of you that celebrate the holiday, Happy Easter, and to all others God Bless.