The stock market rally seems to have lost some steam recently, which should not surprise you (if you read our last update). Nonetheless, we have profited well from the ride so far, which has resulted in most averages making new highs. What’s more, our indicators remain favorable, suggesting that the end has not yet arrived.
Still, we must not ignore the weakening of the trend. The current rally has traveled a long way since last spring. It would be unusual to see a correction before February or March (after the Party Season has truly ended), but it’s not impossible.
The one divergence which continues to gnaw at us is the failure of the Dow Transports to make new highs. We take as a warning sign the fact that transports are now retreating despite moderate energy prices and decent economic activity.
We also want to keep in mind that much of the recent rally has been fuelled by high liquidity. Liquidity is fickle. Further signs of weakness could cause that liquidity to back off or even leave the market in search of a new home.
We aren’t giving up on stocks just yet. So far, we still see signs of decent growth in the U.S. and strong growth worldwide, and that should support stock prices. The transports could still rally. But we are growing more cautious and more watchful.
Meanwhile, a traditionally boring topic in America has captured our interest …
THE WEATHER, THE WORLD, AND END OF AFFORDABLE ENERGYRead more...
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