American Consequences - August 2020

is that the stock market has already assessed these factors, and it’s not worried. That means we still have a lot of upside in the stock market. You see, the market peaks when everyone believes in stocks. But right now, people still have a lot of fears about COVID-19 (which I understand). They don’t believe that stocks can do extremely well despite what’s happening. You can choose to believe it or not. But the new highs in the Nasdaq tell me that fears about the virus wrecking the economy are now in the rearview mirror. A healthy market is one with lots of stocks moving higher. We want to see all sectors and company sizes booming... not just the biggest and most important companies in the major indexes. The market is looking ahead. The market sees record-low interest rates. It sees trillions of dollars in stimulus. And it believes those things are more important to future returns than a potential second wave. It’s the ideal setup for a Melt Up... the last push before a blow-off top where stocks make their biggest gains. We have a perfect financial environment, with still enough fear out there to leave plenty of upside at the moment. More than that, one signal is showing us the broad-based strength of the current rally...

A GREEN LIGHT FROM OUR BEAR MARKET INDICATOR

Today, history is giving us a clear sign. It comes from one of the most powerful bear market indicators we have. And this indicator is giving the stock market a green light . Longtime readers will know what I’m talking about. It’s the advance/decline line. This is a simple measure that tells us how many stocks are moving higher versus the number of stocks moving lower. The technical term for this kind of indicator is “market breadth.” It tells us if, overall, most stocks are moving in the same direction or not. A healthy market is one with lots of stocks moving higher. We want to see all sectors and company sizes booming... not just the biggest and most important companies in the major indexes. That’s exactly what the advance/decline line does. While it might sound fancy, it’s an extremely simple indicator. Each day, you take the number of stocks that went up, then subtract the number of stocks that went down that day. Simple. You then add that number to the previous day’s value for a running total. That makes the advance/decline line a cumulative history of stocks going up or down. And it means that in a healthy market, this line will hit new highs alongside – or even before – the major indexes. Again, by that measure, this bear market indicator is giving us the green light today. The S&P 500 hasn’t quite hit new all-time

24

August 2020

Made with FlippingBook Ebook Creator