Ukraine, Crimea, China, the headlines that have dominated the media have also dominated the mindset of the folks on Wall Street.
We have seen this act before, noise, noise and more noise. I always believe the best position to take when investing is to avoid the "noise" as it will distract one from what is really happening.
I don't believe this time is different. Ukraine, Crimea incident will get resolved, no matter how many would suggest that WWIII is upon us.
I've heard the China concerns in the past. Now besides the new growth issues there are other "risks' that will take the global economy down .
Here are the latest headlines on China related articles that I have read in the last few days :
- Big investment banks rush to cut China growth forecasts
- China Bond Risk Exceeds Ireland as Defaults Unavoidable
- China Is Prepared for Rough Economy Ahead, Li Says
- China is shaking, sending ripples from Perth to Peru
- China's Big Four Banks See $70 Billion Vanish From Stocks
In my view the market is now wrestling with exactly how much of an impact on Europe, and the rest of the global economy, the China headlines present..
This latest pullback has already brought in a flood of "TOP" callers. It's the same crowd that has doubted the rally since its inception, mingled in is the frustrated bear crowd. Personally I think they wish to be the 'hero" that calls the exact "TOP". But the 1 in a million chance for fame is what drives many people, and hey they can always do something else if they are wrong, or just ignore that they were wrong. Similar to what they have done since 2010. But where is the value in creating a fear, implying that investors should sell all of their stocks, on a 2% pullback from a 185% run higher. That makes absolutely no sense at all.
The recent market action would indicate the economy is getting stronger because the economically sensitive D-J Transportation Average traded to a new all-time high last week, thus producing one-half of a Dow Theory "buy signal." There are many other recently reported fundamentals that support this recent price action. Combine this with 4th Q '13 earnings and revenues coming in much stronger than expected as the latest earnings reports now conclude that 4thQ '13 is turning out to be the strongest quarter for earnings growth since the 3rd Q '11 and are now at all time highs.
Going back to the technical front, IF the D-J Industrial Average can do the same as the DJ Transports by surpassing its December 31, 2013 all-time closing high of 16576.66 it will render yet again a full Dow Theory "buy signal." Along with the DJ transports, the Nasdaq, S & P 400 midcap (MID) and the Russell 2000 (RUT) also joined the new high index list. That leaves only the DJIA as the lone holdout.
Since this bullish run began we have had more than a dozen Dow Theory "buy signals," so another one may be in the offing, although as time goes by that reality seems to be be slipping away.
The arguments against this present market, don't end with euphoria, valuation, etc., as many also now contend that it is long of tooth at 5 years of age. Many suggest that the average age of a bull market is 50 months and this one is well past it's prime, has reached its peak, and is about to come to a crashing end.
I have written about this 'age' issue before and believe its worth mentioning again.
It must be noted that nobody measures the 1982 to 2000 secular bull market from its nominal price low of December 6, 1974 (the lowest price the INDU would trade at of 577.60). Rather they measure the beginning of the 1982 - 2000 bull market from the valuation low of August 12, 1982 at 776.92 (the cheapest the INDU would get in terms of price/earnings, price/book, price/sales, etc.). So why do pundits insist on measuring this bull market from its nominal price low of March 2009, instead of its valuation low of October 2011?
Obviously to make their case. However if one correctly uses October 2011 as the starting point it makes the current rally only 29 months in duration and therefore not very old at all, and well short of the 50 month average.
Everything surrounding the market seems pretty negative, yet the S & P is flat on the year and is now off a measly 2% from its recent high, and if that's all the sellers can muster, the logic would suggest the market will now regroup and once again move to new highs.
OR this may be the continuing action that suggest the S & P my be carving out an "INTERMEDIATE" top now and that is a process that takes time.. Far more time than what has transpired to date. The LT trend is decidedly UP and the secular bull market that I have talked about is still in place.
In my view, any shakeout or corrective phase would be a pause in the secular bull market that will eventually take the S & P to new highs down the road. That view is far removed from the announcements from the pundits that the markets are set to crash. Along with the cries that we are about to enter a new "bear" market.
I suggest using the Secular story as a backdrop when making near term decisions as I also have concluded that the S & P is NOT at a major top.
My usual reaction to all of the negatives would be to chant "this too shall pass" and it's business as usual. However, the data points I am tracking are giving me many mixed signals, and a good portion of those signals has to do with the present market levels and how far this market has traveled. So that shouldn't be ignored , as its not time to throw caution to the wind, nor bet the 'farm' at these historic levels.
Having said that, I am pausing, adding a few preferred shares and a BDC or two from the profits that I have harvested. Adding a position or two that represents a 'story" or what I feel is a special situation,so that if the short term market turns out to be rocky the name will work out over the long haul. i.e (NASDAQ:EBAY), (NYSE:LAZ) , (NASDAQ:MU)
Best of Luck to all ...
Disclosure: I am long MU, EBAY, LAZ.
Additional disclosure: I am long numerous equity positions , all of which can be seen here..