Sunday, August 28, 2016 6:19 PM EDT
It is rather unbelievable how many commentators remain bearish on the stock market. For one reason or another, it appears that this gigantic breakout to all-time highs in U.S. stocks, which IS meaningful, is being downplayed. Admittedly, we do not like the underlying reason(s) for the stock market rise, as it is a monetary phenomenon, driven by monetary policies, resulting in inflated asset prices. But, whatever the reason for a rally, investors should only care about price, at least that is the way WE look at it.
We explained in recent weeks how several indicators turned bullish since April of this year, leading to the conclusion that the S&P 500 suggests much higher prices are coming in 2016 and 2017.
Almost all of our stock market indicators are now bullish, and the last indicator to join the bullish group is High Beta stocks (SPHB), visualized on below chart. The SPHB represents high beta stocks in the S&P 500 index. The SPHB chart clearly shows how strong that segment of the market sold off since last summer. Interestingly, the sell off stalled exactly at the 2012 highs. More importantly, however, is the fact that High Beta stocks broke out of their tactical bear market in recent weeks.
With that, we have sufficient confirmation that the stock market rally has more legs. September/October is typically a weak period, and we believe stocks should digest their six month rally since the February lows. Smart investors will be looking for an attractive entry point to buy outperforming sector leaders in the coming 4 to 8 weeks.
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