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S&P 500 Weekly Update: No Need To Out-Think The Stock Market; The Earnings Beat Continues, Follow The Trend


  • Corporate earnings continue to be very positive, forward guidance is also strong. That trumps all of the market noise.
  • It is a global economic recovery that is being confirmed, with equity markets across the globe setting new highs.
  • Crude oil has broken above resistance; the energy sector may now be a tailwind instead of a headwind for S&P earnings.
  • The path of least resistance for equities is up. No need to conjure up why stocks can’t go higher, stay the course.

If you walk peacefully on the beach; our feet sink a bit before we can take the next step forward, rinse and repeat. So goes the market at times.”

- Rose Nose

At some point, even this bull market will tire, but as long as the internals keep holding up, earnings continue to show steady growth, or historical trends suggest otherwise, it won’t be profitable to keep doubting this bull market. That has been the message now for not months, but years.

doubts #2.gif

This year has been no different from the past. There have been any number of well reasoned arguments about why the market should pull back. Whether it was the chaos in Washington, likely war with North Korea, a run of weak economic data, a potentially more hawkish Fed, excessive valuations, being overdue for a pullback, weak seasonal patterns, or something else. The reasoning behind the cautious arguments has sounded good in theory.

They always sound smarter to the human mind because they dovetail with our own worries. Sounding smarter doesn't necessarily produce the desired results. Investors always have to be ever mindful of letting emotion creep into the equation. All of these issues and many others that have come before them have been shattered. Most of the time they never even surfaced. It is why when an issue arises, it needs to be listened to, then assigned a probability of it actually happening. It should never just be accepted as a black and white, has to happen event.


The fine line then becomes we can also never be complacent, and with that the thought of what to do when the market does change course. First, let me be clear that this is not a call that the market has topped. Nor is it a time to believe that we are about to

This article was written by

Fear & Greed Trader profile picture

Fear & Greed Trader is an independent financial adviser and professional investor with 35 years of experience in all market conditions. His strategies focus on achieving positive returns and preserving capital during bear and bull markets and he has a documented track record of calling the equity market correctly for the 10+ years.

He is the leader of the investing group Learn more.

Analyst’s Disclosure: I am/we are long AAPL, FB, BABA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article contain my views of the equity market and what positioning is comfortable for me. Of course, it can’t be for everyone, there are far too many variables. Hopefully it sparks ideas, adds some common sense to the intricate investing process, and makes investors feel more calm, putting them in control. The opinions rendered here, are just that – opinions – and along with positions can change at any time. As always I encourage readers to use common sense when it comes to managing any ideas that I decide to share with the community. Nowhere is it implied that any stock should be bought and put away until you die. Periodic reviews are mandatory to adjust to changes in the macro backdrop that will take place over time.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (219)

Fear & Greed Trader profile picture

thanks for the update and sharing it here..
JC ROCHESTER profile picture
Fear & Greed Trader,

Just a quick update on the Small-caps sector, which is getting close to flashing a short-term cycle buy signal very shortly after drifting lower the past 5 weeks to its EMA50days support, which is expected to hold on account of its MACD still being in positive territory.

Accordingly, I entered my 1st batch (water-testing) of TNA @ $62.5 during after-hours session (2017-11-07), and will follow up with more aggressive deployment upon confirmation the next day or 2.

There is a 50/50 chance that it wants to droop a smidgeon further to EMA50days on the closing basis, or marginally below worst-case.
LTTFTrader profile picture

I hope you're right. I've noted the drop in R2k but it still has a ways to go (much more than "a smidgeon") before my method would give a sell signal.

Congratulations on AAOI! Great trade!
JC ROCHESTER profile picture

My post refers to a BUY signal in Small-caps (on 2017-11-07), not SELL as in yours, LOL.
LTTFTrader profile picture

Sorry, but I don't understand. Are you saying that your small cap buy signal would be a signal for me to sell all my R2k?
Fear & Greed Trader profile picture

if that is the same Richard Bernstein, from Bernstein advisers, he has been absolutely correct in his assessment of the entire bull market now for year and he is a must read for me.

this entire bull market has been one defined by fear of the next "event"
E+Lee profile picture
There's an article in today's NY Times titled "A Bull Market Should Make Investors Happy. This One Isn’t." which echoed some of the themes discussed here every week.
From the article:

Mr. Bernstein argued that investors should care (about) the economic and corporate fundamentals — not the remote chance that a calamity will strike.

“You cannot invest successfully,” he said, “when you are crouched under your desk in a fetal position.”
Fear & Greed Trader profile picture

i have a small position in QCOM that i have held for a while.. I haven't added simply because i saw other opportunities that interested me.

thanks for sharing you positioning
Robert Jacobson profile picture
Steve - thanks for using Rose’s words at the beginning of your article. She is one of the best investors and, more importantly, people I’ve met thru SA.

Oct 1987, Mar 2000, Aug 2007. Take your pick but if you had invested just before any of these dates, you’d still be up significantly now.

I have been investing on a riskier basis lately it seems. Still adding to ETP, WFC and this week addd to OHI as I like them long term. How about QCOM this week? Have continued to buy (part of my “risky purchases of late). Official offer expected tomorrow.

KURTKAMM profile picture
Great write-up as usual, but the first charts are all but illegible
Fear & Greed Trader profile picture

I know ,

one of the drawback to the SA format that we have to use.. then again maybe I can find the reason why these charts cant be expanded..
Great article as always. I was keenly interested in your report on investor sentiment as I saw am article earlier in the week that reported II were now 68% bullish vs 14% bearish. I thought that was quite the jump from last month and gave me a moment of pause. If I can find it I'll put it up here.

Thanks again
Fear & Greed Trader profile picture

ok, but keep in mind, sentiment can stay well elevated before any market top.

the change, IF it truly is a change has just begun..
05 Nov. 2017
thanks again for your weekly column and careful analysis of the onset of a bear market
much appreciated
I used to think technical analysis was voodoo magic, 'just pay attention to the fundamentals' my dad said. I learned the hard way to use both. Some fundamental analysis can be based on wrong assumptions like 'peak oil', not taking into account potential advances like fracking and other improved extraction techniques. As well as a shift to electric vehicles. Why else would the Saudis want to sell a piece of their action if everything was roses.
Fear & Greed Trader profile picture

""""I used to think technical analysis was voodoo magic,"""

you are not alone , many still do, bottom line we need to marry the technical picture to the fundamental side to see the entire story.
flysafer profile picture

This weeks article was the bomb! You’re perspective is always appreciated, but this week was a gem! Thanks for the info and the education!

Please keep em coming! Thanks!!!
Fear & Greed Trader profile picture

thanks for stopping by and reading
Fear & Greed Trader profile picture


Thanks for the kind words
Gelston profile picture
Mr fear and greed,
thanks for being here and thanks for your excellent articles.
this is now a weekly stop for me.
You are a great teacher.
Pogo321 profile picture
F&G Trader,

Thanks again for these weekly articles; they're very informative. When I started reading them in Jan 16 I barely understood them; now I'm starting to get it a bit. Thanks for the detailed explanation of the stock prices crossing below the 20 Mo? (even though chart says 20 day; I think I got that from the comments) MA and then the retest. It was interesting to watch that week by week in 2016, and appreciate the refresher course.
Fear & Greed Trader profile picture

sometime these issues and my explanations of them are difficult to follow.. I do my best to make sure they get the point across,, but this weeks article is an example where i use these charts daily and honestly never noticed how they were mis labeled. and how confusing they are to someone that has never seen them
Pogo321 profile picture

It' good stuff. Also enjoying the dialog you and JC Rochester have going in the other article wrt AAOI.
Fear & Greed Trader profile picture

I sure hope JC shows up soon , his analysis is invaluable
springlite1 profile picture
Fear and Greed
Thanks, you reminded me to get my short ETFs in order in the event they are needed. I have four I like to use and frankly I had forgotten one of the less volatile, so I went back through my accounting program to find it. One of my favorites without the wild 2X or 3x ride is HDGE.
Fear & Greed Trader profile picture

points well taken but i believe the market can digest $60 oil and even though energy is a smaller percent of the index the benefit to overall earnings is a plus.. I guess what i am saying is that it stabilizes the sector.
I apologize in advance to F> and other readers for this off-topic question. But it may be of interest to others. Please ignore if you are not interested.

Regarding the tax reform proposal:
- Are the new proposed individual brackets before or after the standard deduction?
- For example, is the married 12%-25% proposed bracket change at $90,000 based on: (1) an income of $90,000; or based on (2) $114,000 income (before the $24,000 proposed standard deduction)?

I think the proposed brackets are based on the latter (2) - incomes above the standard deduction. But it is unclear to me based on the reporting I have read (and even the actual text of the bill released Thu).

I ask because I am trying to determine if I should do a Roth conversion this year, or wait and see what happens with tax changes. Thanks in advance to anyone who knows.
I wondered the same thing, especially after I saw this quote from the LA Times:

"Households with up to $24,000 in annual income will not be taxed because of a new expanded standard deduction. Income from $24,000 to $90,000 will be taxed at 12%."

I believe when they talk about income, they mean Adjusted Gross Income, which is before the standard deduction. Currently, that is the way it works, but you also get to deduct personal exemptions from AGI, something that is going away now.

Under present law, taxable income is what you get to AFTER the standard deduction or itemized deductions, and after the personal exemptions. Under the proposed law, you take your adjusted gross income, e.g. $40,000, and then deduct the new $24,000 standard deduction to arrive at $16,000 taxable income. That would be taxed at 12%, or $1,920.

Under current law for a 65 year old couple, they would have $23,300 in standard deductions and personal exemptions. Using the same example of $40,000 adjusted gross income, they would have taxable income of $16,700, taxed at 10%, or $1,673. So they are paying $247 more under the new law.

The problem with this example is that many seniors do itemize their deductions, such that those itemized deductions in addition to their now eliminated personal exemptions were greater than the new $24,000 standard deduction, especially if they have large medical deductions which are now eliminated, in addition to the r/e tax which is now limited to $10,000. Those people could be paying much more under this plan.

What this shows is that seniors are not benefiting from this tax reform bill, but are being hurt by it. They still have their social security benefits subject to taxation, too, without the benefit of an increased exemption that the Congress has generously given to estates by doubling their exemption. There have been no increases in the SS exemption in the 30+ years they have been taxing SS benefits, despite inflation.

Yet I have heard not a peep from the news media nor the senior lobby groups about this.
The brackets do appear to be for AGI (after the standard deduction).

Here is a good analysis of the proposed tax reform by Michael Kitces.
- http://bit.ly/2j5qdRb
- Thanks to Jeff Miller for this link.
Fear & Greed Trader profile picture

please no apologies necessary , it adds to the conversation and is investment related.

its not like you are asking about global warming :)
LTTFTrader profile picture
F&G, I don't know how you do it, but every week you find at least one new and very illuminating concept to present. My favorite this week is the S&P vs. Fed Balance Sheet chart under "Market Skeptics". Thanks, and keep up the great work!
yes but he really should also include a chart of S&P vs Total central bank balance sheet
Fear & Greed Trader profile picture

sometime these things just come to me .. and plenty of experience to draw from..
Fear & Greed Trader profile picture

but what exactly would that prove?. would it diminish the gains bullish investors have garnered.

i told someone who brought up the fed to me in 2013 and told me I was about to get killed in the market then,,

my portfolio account does not say fed induced....... it just reveals a total like all other accounts..

Oh i can recall how i was massacred in the early stages of this bull market, when literally almost NO one believed .
Author stated, 'Anyone still hanging on to that idea to form an investment strategy has been left behind. For those that were telling us the bull market was over as the Fed balance sheet wasn’t increasing and the market sold off in early 2016, forgot that energy earnings were the real culprit for that decline.

Worse yet for those that continued to believe it was all about the Fed, convinced that stocks would drop amid the lack of QE, found themselves trapped. So while the balance sheet remained stable, the bull market in equities has seen a new leg higher and rallied over 35% from its early 2016 lows.'

I will say that this is one thing you've said again and again, and each time you neglect to mention that there are other central banks beyond the Fed, and they in fact *doubled* monthly QE starting Mar 2016. Coincidentally enough, market had a hockey stick recovery from Feb 2016 low, and it's been all roses since. As a matter of fact, total global QE today is still just about the *highest* level of monthly QE going back a full 9 years to the dark days of the depression. If global recovery is so awesome, why is this the case?

I don't mean to be argumentative, and I certainly do *not* think I am a better investor than you, no way no how. I just think you are glossing over global central banks balance sheets of close to 20 trillion as just a minor detail and not the reason why risk assets are still priced as high as they are. For me it is the #1 reason, the #2 reason, #3 reason, etc. It is all that matters anymore. I can practically guarantee that markets would crash something fierce if Fed, ECB. JCB, et all. all said in unison that they would let their 20 trillion balance sheets taper off by say 35-40% over the next 5 years. It would be a blood bath, a total massacre.
Sorry if I come off too harsh on F&G, as I do enjoy the weekly market summary. It just perplexes me why one of the biggest reasons for risk assets being where they are gets so little weekly analysis as part of the 'big picture' summary.

Also forgot to say that Fed did indeed start their balance sheet normalization. Think they showed a drop of 5-6 billion, got it in right before the end of October. I think it bears watching as well as what ECB decides to do in 2018 as their balance sheet is actually higher than Fed's at this stage. JCB seems determined to nationalize their bond/equity market, no stopping for them I guess. Swiss central bank now owns 88 billion of US equities, most all large caps. And the beat goes on...
Comfortably Numb profile picture
Well said.
Fear & Greed Trader profile picture

no apology necessary, you make points that are indeed facts ..

but there are other facts as well. it just depends on what an investor wants to use. now I could go into a very long dissertation on the Fed and other central bankers, but that wouldn't matter.

there is ONE thing and ONE thing only that matters and that is price action,, Period, end of story.

one can embrace that or one can do what every investor that ever bought a share of stock does.

The reason I gloss over it is part of the title and my overall view of the markets in general. I have totally given up on trying to out wit or out think the market, i did it for years and muddled thru investing.

i went thru the phase of--- what does this mean ? how will this affect that sector, what if this develops. ? what if "they' do this?
you know the drill it goes on and on.. and NEVER ends

I then realized that what really matters is how the equity market is acting , and slowly pushed these questions to the side. the results increased dramatically

now that doesn't mean we bury our heads in the sand as investors , and this is THE HARD part , because it is a fine line that we must navigate to be successful. listen ---but don't lose sight of what REALLY matters.

keeping it simple it does then come down to

am i to be concerned, worry, make excuses why the market is higher and blame the fed, or GAAP vs NON GAAP earnings , corp. buybacks , financial engineering and all of the multitude of reasons why the stock market is propped up overvalued and ready to crash ?

OR do i watch the price action, look at the economic data , and follow the trend. ?

it does come down to do I want to be RIGHT and stick to principles or do i want to make money ? that comes off smug , pompous and arrogant to some

it isn't intended to be that at all ,

because that is what HAS and IS happening..

so when i say the folks that continue to believe the central bankers are responsible (or some other reason) for all of the market gains and stayed on the sidelines are indeed way behind , they have their principle outlook that tells them one thing. but they haven't prospered.

and we can throw around the word massacre, but I will point out the 65% gain since the breakout in 2013 . (and there are plans to help navigate a massacre :) )

your commentary is always welcome here.
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