Date: May 10, 2017

Bulls Still in Control Over Long-Term

Let’s continue on the same theme I started the other day, risk versus reward. While I firmly believe that the bull market remains alive and fairly healthy, I do not like the risk/reward right here. My view is that Dow 21,600 is the upside ceiling while downside risk looks to be 20,000 or even a little lower. That’s just not the set up you want over the long-term and I think pruning and protecting is the right call here, whether it works out or not. Longer-term, Dow 23,000 remains my target. I am definitely not a bear nor calling for a bear market or even a correction.

When I look at sector leadership, I see that semis and discretionary are making new highs in sync. That’s healthy. Banks and transports remain in ranges which is neutral. Junk bonds are still strong and the NYSE A/D Line is essentially at all-time highs. Bear markets do not begin with this kind of internal strength. Don’t overthink this. We have a short-term red flag. That’s it.

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Paul Schatz, President, Heritage Capital