Date: January 13, 2017

Bears Need to Act Quickly, But Bulls Won’t Make It Easy

After Thursday’s morning sell off the bears finally had something to latch on to. All they needed was to stave off any bull attempt to rally into the close so the bears could try and follow through on Friday morning. However, as pundits called for more weakness, stocks rallied all afternoon and into the close. Unless the bears can make some serious noise on Friday and undercut Thursday’s low, it looks like Dow 20,000 will be tested over the coming few days.

Earnings season has begun and everyone is keenly focused on the banks as strong results are expected. I have a slightly different view. While I fully expect good earnings, especially from JP Morgan, Bank America and the super regionals, the real test comes in three months as fruits of the Fed’s recent rate hike will start to be felt. I also think that forward guidance or soothing commentary will be much more important than the current report.

I have been mentioning that what lost during Q4 was likely to bounce back and lead to begin the year. That means treasury bonds, gold, yen and euro. If stocks are ready to blast higher by another 1000 points or so, these instruments should start to roll over much sooner than later and revisit their December lows. At the same time, I would expect leadership from semis, banks and transports to reemerge and make new highs.

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Paul Schatz, President, Heritage Capital