Date: February 9, 2017

Bears Still Struggling to Make Progress

Happy snow day to those of you in the northeast!

For several weeks, there have been all kinds of studies which indicate that the risk/reward for stocks is skewed to the downside over the coming weeks and few months. The same can be said of some daily studies. When I say skewed, I mean favors a typical and normal pullback of 2-5%. Yet each time the bulls look tired, they somehow prevent the bears from making any progress. In the past, the bears moaned and groaned that the Fed has been helping the bulls, however, with the second rate hike two months ago, that bogus argument is losing.

As I keep writing, markets are very close to being priced for perfection. They are rallying on the hopes of a pro-growth, legislative tsunami by Paul Ryan, Mitch McConnell et al. If that somehow stalls out in Congress, the markets will not be happy. I still do not believe that strength should be bought, but I remain firm that weakness should not be sold. Use pullbacks to rotate to better positions or use cash.

While all of the major indices except the Russell 2000 got in gear to the upside, the Russell looks like it wants to join the party sooner than later. That could provide a little short-term boost to stocks.

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Paul Schatz, President, Heritage Capital