Date: January 9, 2015

Another “V” for the Bulls… Must Run from Here

As I have written before, since mid 2012 the stock market has seen more “V” bottoms than in all previous years combined. “V” bottoms went from being very rare to becoming the norm. With each successive low, investors are changing their buying behavior to accept the “new” behavior as the norm. In my view, this is setting up the masses for yet another 2000-2002 or 2008 style wealth decimation.

So now that we have yet another confirmed “V” bottom, which for full disclosure, I continue to use as trading opportunities, where are the markets headed? Two days ago, I wrote about the markets lacking the warm an fuzzy feeling. While I remain fully invested, I am dancing closer to the door than I have in a while. The bulls must take the major indices to new highs right here, meaning this month. Any failure to see new highs and subsequent rollover to the downside should result in a full fledged 10%+ correction. And even if we do see new highs, there needs to be higher conviction. Market internals are not positioned strongly and need to improve dramatically. By that, I mean the number of stocks advancing and declining as well as the volume in those stocks. We also need to see the number of stocks hitting new highs expand on any new high in the major indices.

For now, the ball is in the bulls’ court and they must run hard. The monthly employment number hits before Friday’s open and I am looking for a “much ado about nothing” reaction. After increased volatility over the past week, it would be a good sign to see a few quiet days in the markets.

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Paul Schatz, President, Heritage Capital