Despite the potential for shorter-term resistance, it appears more stock market gains are coming
“Where’s the market headed?”
That’s the question every investor wants to know.
For all the talk of major trends, fundamentals, technicals, China, the Fed, and all the other influences that affect the investment markets, what we really want is a crystal ball — what’s next?
While no one can predict the future, here at InvestorPlace, we’re proud to feature some of the most insightful, successful analysts in the industry. Given this tremendous resource, in this Digest, let’s go straight to three of our analysts to get their current thoughts on the market, where it’s headed, and what that means for your investment dollars today.
***Let’s start with famed investor and editor of Growth Investor, Louis Navellier
Louis is a master of finding companies with massive earnings growth, which, at the end of the day, is what drives stock values. On Tuesday, Louis gave the following update to his subscribers:
There was plenty of love on Wall Street last week. The stock market celebrated fourth-quarter earnings, a bipartisan budget deal, the avoidance of another government shutdown and positive developments in the China-U.S. trade negotiations. In particular, as worries about a government shutdown and a China trade deal dissipated, the stock market staged a nice relief rally.
The biggest distraction for the stock market in the coming weeks will now be Britain’s impending exit from the European Union on March 29. The Brexit is already serving as a disaster for both the British pound and the euro. On the other hand, the Brexit has been a boon for the U.S. dollar, as it has strengthened from the recent international flight of capital.
With foreign capital pouring into the U.S., not only has the U.S. dollar strengthened further, but U.S. Treasury yields have also moderated significantly. Along with remarkably stable Treasury yields, inflation remains tame. Last week, the Labor Department reported that the Consumer Price Index (CPI) was unchanged in January at 1.6%, and the Producer Price Index (PPI) slipped 0.1% last month. So, the Federal Reserve is not expected to raise key interest rates anytime soon.
As you may have guessed, that continues to bode well for stock market appreciation, since investors are no longer worried about the Fed raising rates. Instead, Wall Street can focus its attention on the stunning fourth-quarter earnings season and fundamentally superior stocks.
However, as we’ve discussed before, the fourth-quarter earnings season will likely represent “peak earnings” for many companies. Year-over-year comparisons are becoming more difficult, and the S&P 500’s earnings are expected to decelerate sharply in the upcoming months.
As long as we continue to focus on companies with strong sales and earnings growth, we’ll continued to do well in a decelerating earnings environment.
Louis goes on to identify four specific sectors he is looking at for outperformance in 2019. To get his thoughts, click here.
***Meanwhile, two of our expert traders, John Jagerson and Wade Hansen, also see the potential for more gains to come
John and Wade are the minds behind Strategic Trader, which uses a combination of fundamental and technical market analysis to profit from trades on stocks and options. On Wednesday, they wrote the following to subscribers:
We have been watching retail spending and consumer sentiment closely in 2019. Official reports, with few exceptions, have remained very positive this year, even if sentiment data are slightly off their prior highs.
The U.S. economy is primarily driven by consumption, which comprises 70%-80% of GDP. If consumers stop spending or confidence dips, the economy will follow.
Consumption data strongly suggest that we should be in good shape to challenge last year’s highs in the major indexes. If we see some profit-taking at this level while investors sort through the data, we should be able to leverage that into new investments at undervalued prices and some additional premium-selling opportunities.
The Federal Reserve also released the Federal Open Market Committee (FOMC) meeting minutes today (Wednesday). The statement was mostly a repeat of what was said in the actual meeting last month. Comments within the statement about below-expectations inflation and growth concerns in China could be interpreted as dovish (lower rates), which should be supportive in the short term for stocks over the next week.
***And last, another one of our options experts, Ken Trester, sees some shorter-term resistance, yet also growing fatigue from the bears
On Feb 20, Trester wrote the following to his Maximum Options subscribers:
Even after eight consecutive higher closes on a weekly basis, the major indices in the U.S. continued to the upside on Tuesday as the markets reopened following the Presidents’ Day holiday.
The S&P 500 added 4 points, or 0.15%, to close just under the 2,780 level. It hit a mid-day high of 2,787.33 before pulling back slightly into the close, but it was able to close above its 200-day moving average once again.
However, as you can see in the chart above, the index is coming up on some strong overhead resistance at the 2,800 level, where it was rejected several times during the final quarter of 2018. You can also see in the upper panel of the chart that the relative strength indicator (RSI) has now reached overbought levels again.
Traders often use indicators such as the RSI to determine whether a stock or index is in “overbought” or “oversold” territory. Typically, an RSI reading above 70 tells traders that an asset is overbought, or overvalued, while a reading below 30 tells traders that an asset is oversold, or undervalued.
The fact that the RSI is right around 70 this week tells me that we could be in for a pullback over the near term.
Lastly, the S&P 500 Volatility Index (VIX) has now closed below the 15 level for two trading days in a row and is continuing to move lower this morning. With both the 50-day and 200-day moving averages turning lower, it looks like the bears are getting tired of fighting against the uptrend that has persisted since the start of 2019.
As of the time of this writing, the VIX is down 3.4% on the day to 13.97, well below 15. So, it appears Ken’s call that the bears are getting tired is continuing.
***So, let’s summarize our analysts’ views
Louis is pointing toward a slimmer opportunity set for U.S. stocks going forward in 2019, but he still sees plenty of gains for fundamentally-superior stocks.
John and Wade believe the U.S. consumer is in solid shape, which should drive GDP and help push the market indices back to last year’s highs, though we might see some shorter-term profit taking.
Ken thinks that elevated RSI levels might mean we’re in for a short-term pullback, yet the technical action of the VIX suggests the bears are running out of steam.
Combined, this points toward cautious optimism for U.S. stock gains. Of course, pay attention to your stop-losses, and make sure your reasons for buying and owning your specific investments are still in place. We’ll continue to keep you updated.
Have a good evening,