Major averages finished near breakeven on lower volume. The bull market appears alive and well with Trump's market friendly policies on the way and QE continuing to pump with ferocity out of major global central banks to which the US stock market is an indirect beneficiary.
In the current environment, stocks on our Focus List have done well overall with a number of them having continued higher or even gapped up at times, well after they were placed on the list. Nevertheless, our strategy of taking profits when a stock gets ahead of itself in price and buying a stock near support so your risk is typically less 2-3% as showcased in our VoSI VooDoo Report remains key.
So while the fear gauge known as the CBOE Volatility Index (VIX) trades near all-time lows and the US bull market, now in its ninth year, trades at record levels, a number of market bubbles lie in wait. The bursting of any bubble could trigger a chain reaction. The elephant in the room are the debt levels which remain hugely problematic as does a domestic and global economy that may be teetering.
Meanwhile, the Federal Reserve's hands are tied as they cling to their mandate of higher rates , aiming to put more fuel in the interest rate tank which remains near empty even after two 25 basis point rate hikes. But will the QE-boosted stock market have the elasticity to withstand more rate hikes, let alone the two additional hikes this year? And what about all the non-debt obligations such as pensions, social security, and healthcare entitlements which are all coming due?
In times past, central banks had more room to ease as interest rates have historically been at higher levels. It is only post-2008 that rates were reduced to all-time historic lows. And negative rates have been shown to be potentially crippling to the financial system.
But trying to time the day of reckoning is foolhardy. Rather than predict, keep a close eye on price/volume action. Stocks and major averages have historically shown material weakness days if not weeks before a major correction such as in 1929, 1987, and 2008. Even the flash crash of 2010 showed warning signs days before which is why the Market Direction Model went to a sell signal on April 28, 2010.
In the end, price is all that matters. Coupled with volume clues, it has always been the best way to exit to safety or to initiate short positions in stocks or ETFs.