I love to play the 10th man. It gets me in trouble a lot though. It comes across as argumentative or combative if you forget about the key word in the job, “loyal”. As humans one of our biggest flaws when it comes to making the best decisions is our default response to anchor only on our beliefs or the consensus. Of course, the best decisions are those that are made by looking at every solution, including those that present the other side of our beliefs. If we remember the goal is to make the best decision and not about our ego and being right, we stand a much better chance, over the long run, of being better off. This is especially important when it comes to investment/financial decisions and money is on the line.
With that in mind, the “end of the worlders” are out in force. They make a case for this being the end of this economic expansion (the longest in history), bringing in politics, war, negative rates, fake meat etc, etc. and therefore why investors should be de-risking portfolios. Playing the 10th man here and presenting the other side, while it’s not my analysis, the historical technical study done by Tom Bowley below presents a very strong case and why it may be too early to write off bulls just yet. If you are a doom and gloomer, I just ask you keep an open mind and read …
“I've been adamant that we remain in a secular bull market, and I'm sticking to it. Yes, September scares me. The Fed petrifies me. And no more tweets, please! Oh, and let's not forget about the inverted yield curve (which isn't inverted any longer, by the way). But, despite all of that, here we sit on the brink of yet another record all-time high on the Dow Jones, S&P 500 and NASDAQ. It's going to happen.
Over the past week, we saw new leadership emerge. Financials (XLF) did very well, as did industrials (XLI). It's easy to forget, but these two sectors were our leaders from 2016 through early 2018, when we raced to new record highs with only the slightest hint of volatility. The small-cap Russell 2000's ETF (IWM) is comprised nearly one-third of financials and industrials. These two sectors are very important to the performance of this closely-watched small-cap index/ETF.
One thing we need to keep in mind is that when transports ($TRAN) and small caps ($RUT) perform well, it generally translates into huge S&P 500 gains. Let's use the 10+ years of this bull market to illustrate:
I think this chart is very clear. When the downtrends and/or consolidation periods in both transports and small caps break to the upside, the S&P 500 is likely poised for a major, explosive rally. While we might be premature, an argument could certainly be made that both the TRAN and the RUT broke their downtrends this week. The next few weeks will likely either refute or confirm that statement, but, if it's the latter, prepare for a launch higher in Q4.”