To close off the week, I’d like to offer some words of wisdom from my old friend Tony Jasansky, P.Eng. Tony has spent more than 40 years studying and analyzing the markets. He’s one of the best stock market analysts I know. Here’s what he has to say about stocks right now…
“The only obvious difference between Janet Yellen, the incoming Chair [of the Federal Reserve], and the present Chair, Ben Bernanke, is in their gender. Investors who have loved Bernanke’s monetary abandon are already placing their money on Janet being just as energetic in keeping the money pump going. In recent days, both of them emphasized that the Federal Reserve will keep interest rates low even after the monthly $85.0-billion bond purchases have wound down.
With commodities including gold in a bear market, and the bubble in bonds waiting to be deflated by the Fed’s soon-to-end bond purchases, stocks are still seen as the ‘best game in town.’ The five-year bull market probably won’t end until it reaches a bubble stage, comparable to the 2000 and 2007 tops. Observing the recent changes in indicators measuring the degree of investors’ fear and greed, my wild guess is that 2014 will be the year of another big top.
Last month, I said the overbought market conditions, measured by the price and breadth indicators, pointed to a short-term correction. Instead of the expected ‘healthy correction,’ the U.S. market moved sideways for two weeks before resuming its uptrend, lifting most indices by another 3%.
The resumption of the uptrend and the successive daily highs hit by virtually all major U.S. stock market indices have had a predictable impact on the Sentiment group of indicators. Bullishness towards stocks is getting close to the type of bullishness we see at extended stock market tops.
The generosity of the Federal Reserve and stable corporate profits, also helped by the historically low interest rates, continue to keep my Fundamental/Monetary group firmly in the bullish zone. With the benefit of hindsight, over the last four years, I could have saved myself the work of analyzing the market by paying attention only to the Fundamental/Monetary group while ignoring all other ‘distractions.’
The Technical group, which was already bearish four weeks ago, has lost more ground. The sell signal from my technical model that numerically compares the relative strength of the DJIA [Dow Jones Industrial Average] to the NYSE daily breadth and volume further contributed to the decline in the group. The declines in the Technical and Sentiment groups have moved me into [the] bearish zone. Considering the deterioration in daily and weekly indicators, I would be selling during the traditional year-end seasonal rally instead of buying stocks, as 2014 will be a very challenging year for stock market investors.”