Date: May 31, 2016

Buy the Dip

As you know, I turned short and intermediate-term positive again last Monday. My long-term bullish view never changed. Stocks rallied really nicely for most of the week and should see higher highs coming in June. I closed Friday’s post with a comment that a pullback this week would not be so bad. I think it’s here and should be routine and healthy with a quick bout of 1-3% weakness. There is one caveat which I will mention in another post if the scenario puts that in play.

The Dow has been lagging the move and I expect to see some leadership develop after the pullback. The S&P 500 came just shy of the April highs. The S&P 400 is seeing its highest levels of the year along with the Russell 2000. This is not a negative set up. REITs, utilities and staples are in an interesting pattern that needs to be watched closely here.

Semis and banks continue to lead with transports and discretionary in the middle of the pack. This is¬† not a negative set up. Junk bonds remain strong and the NYSE A/D line is at new highs. Sentiment remains muted. I saw Blackrock turning “neutral” on stocks this morning, whatever that means, but it certainly not a negative for the market. Barron’s headline¬† was “The Stock Market Won’t Crash – Yet”, certainly not the exuberant cover you would normally see ahead of a large decline.

Gold has come to a point where it is “supposed” to bounce. While I do believe the highs are in for a while and we will ultimately see much lower prices, the bulls should put up a fight right here. Strength should be viewed as a selling opportunity.

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Paul Schatz, President, Heritage Capital