Date: May 22, 2014

Speaking Out of Both Sides of my Mouth

It was such a pleasure and privilege to spend an hour on Fox Business’ Opening Bell with Liz Claman, one of my all time favorite anchors. She was hysterical off camera and we had a lot of fun with the various segments which I will publish here over the next week. The whole Fox Business crew was incredibly nice as they always are. I can’t wait to do it again, hopefully next month.

The first topic we covered was Market Flashing Warning Signs. This is not a new topic for blog readers, but it’s one that I imagine will be front and center for some time. As supported by fierce sector rotation, including taking the momentum groups out and shooting them, the stock market is transitioning into the next and final stage of the bull market. At this point it looks like the final top isn’t until 2015, but I will take the information as it is presented.

Although stocks have basically gone nowhere since late February and really all year, we have seen somewhat of a schizophrenic market with the Dow up triple digits one day and down triple digits the next. While that may seem frustrating on the surface, the bulls say it is a sign of underlying strength that after such a powerful advance, the bears cannot make any meaningful headway. The bears on the other hand, say that the stock market is distributing stock from strong hands to weak hands as a major peak is developing. In fact, they can both be correct depending on one’s time frame.

It is definitely bullish in the short-term that stocks are holding up so well with all of the geopolitical nonsense and Fed tapering. At the same time, trading ranges like we are seeing now, often resolve themselves with a final blast higher to a peak that leads to corrective behavior over the intermediate-term. That’s putting the cart before the horse as we have not yet seen the blast off by any of the major indices.

For now, we need to watch the indices as they attempt to breakout or down from the range. I am absolutely loving the action in emerging markets, not only because our EM strategy is finally killing it after a few challenging years, but also because it was one of my trades of the year, long EEM and short IWM. It’s also a positive for the bull market.

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Paul Schatz, President, Heritage Capital