Oct 28

The Market Today 10/28/15: Bullish


The market has certainly played to it’s seasonal tendancies. During the traditional weakest time of the year, which is the third quarter from July through September, the market sold off strong. The market’s traditional strongest bullish period, is from October through January. This month has been extremely strong, since it bottomed on September 29th. Has there been any real new’s or events, that caused the August/September swoon, and the subsequent October rebound? Not really. The earnings release period this seasonhas not been all that strong, nor has it been all that weak. The rising dollar has impacted multi national companies earnings, oil is still trading near their low’s, so that part hasn’t been a real market mover. I feel the real reason is two fold. The main reason is the seasonal tendancies. The second, would be the correlations with the German and the Japanese markets, which have bottomed, as well as rebounded at roughly the same time periods. In addition, the key 10 year treasury has stayed above the important 2% level. There was a slight dip below, but nothing that I am worrying about.

There are some concerns that I am keeping an eye on. First, is interest rates. Today, the FED decision was to leave interest rates the same.They did however say in their commentary, that a hike in interest rates was on the table for the December meeting. In order for this to happen however, the job’s market would have to improve, and that inflation would have to pick up. I do see the job market picking up, but I do not see inflation picking up anytime soon. Therefore, I do not see the FED moving interest rates higher in December. I have said since early this year, that I do not expect them to move rates higher until 2016 at the earliest, and possibly even 2017. If the 10 year interest rate were to have a sustained move under 2%, this would concern me. It bother’s me only because the rate would stay below 2% if there were concerns that economic conditions were to deteriorate. Next, global conflict. Should the situations in Iraq, Afganistan, and Syria get worse, and military confict escalates, expect a pull back in the markets.

Bullish: Stocks

By looking at the chart above, you see the two yellow cup’s below the market bottom’s of August 25th, and September 29th. This two yellow cup’s highlight the swoon we saw in those months. What caused me to become very bullish, for the first time in quite some time, was the fact that the bottom in September was higher than the low in August. I reallocated my clients accounts on October 6th, about a week after the latest bottom. The bottom was actually confirmed on October 15th, when it broke the high of 2,020, between the August and the September low’s. Due to this fact, this move tell’s me that the market should be moving towards new high’s, and should move higher, to roughly the 2,150 to the 2,250 levels. That being said, should the market pull back during the strong October through January period, look at that as an opportunity to either add to current positions, or initiate new positions in this bullish market!

Bullish: Bonds

The bond market has been just as volatile as the stock market. We have seen the key 10 year rate move from as low of 1.85%, to nearly 2.3%. Then, the bullish bond market briefly reasserted itself recently, by touching the 1.9%! level. Today, the 10 year rate closed at 2.09%. I expect the next move to be a move towards the 2.3% mark, and possibly the 2.5% level. I would be very surprised if it went above that. Should the rate move above 2.8%, or even the 3.25%, that would tell me to lighten up on equities, because this would make bond rates more competitive with stocks. Just to let you know, I do not expect this to happen.

Author Sean Rhodes is an expert in financial markets and helping you manage your money. For a no-risk consultation, check out Sean at the following link for more information, and expert advice on portfolio construction, and helping client’s participate in this bulllish market!

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