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We might just be hitting the acceleration phase of the bull market

Joe Fahmy

We are in a strong, secular bull market. It will most likely end with more acceleration to the upside. The only problem is no one knows if it will happen six months from now, two years from now, or longer because moves in the market tend to go on MUCH longer than anyone can expect. Of course we will see pullbacks, shakeouts, and corrections along the way, but this market is heading higher longer-term for the following reasons.


The big institutions control the market. It is so important to analyze and interpret what they are doing on a weekly basis because you never want to fight the trend. If they are consistently buying and the wind is at your back, stick with the trend. If they are consistently selling and distributing stock, get defensive. Right now, there are very little signs that the institutions are selling. Since the beginning of 2019, neither the S&P 500 nor the Nasdaq Composite has seen ONE week of institutional selling. In fact, the big institutions are still accumulating shares. Use the 10-week moving average as your guide. As long as we continue to close above this line on a weekly basis, stick with the uptrend.

I’ve been watching the tape for over 20 years. It’s a lost art that involves reading the nuances of the market. The biggest thing I’ve noticed is the consistent resilience in the market and many of its leading stocks. In addition, many of the FAANG stocks have corrected since Q4 of 2018 and are putting in first stage bases. So far in 2019, the market has recovered very well without the FAANG stocks moving to new highs. If they begin to break out of their recent consolidations, it could provide further fuel for a sustained rally. One example is Amazon (AMZN) (provided in the chart below).

Charts are provided by MarketSmith.


Earnings and interest rates are the two biggest factors that drive the stock market. Right now, earnings continue to be strong. According to FactSet, with 78% of the S&P 500 companies reporting earnings through May 3rd, 76% of them have reported a positive EPS surprise and 60% have reported a positive revenue surprise. Of course, earnings are growing at a slower rate than 2018, but they are still progressing at a slow and steady pace. Regarding the economy, many seem to be obsessed with predicting the next recession, but there are no signs of one at this time. Over the past nine years, the economy was never in an explosive growth stage. We have simply been growing GDP at 1.5%-2.5% per year. Why can’t this slow and steady pace continue for a while? If we consistently grow at 3% or higher, this could justify acceleration in the stock market. Regarding the China Trade talks, President Donald Trump knows he has some leverage. A deal will get done this year so he has another accomplishment to discuss when it comes time for re-election.

Interest Rates

The biggest reason for the rally in 2019 was the Federal Reserve’s shift to an accommodative stance. In early October 2018, Fed Chair Jerome Powell said he would be raising interest rates three times in the upcoming year. Clearly, the market told us it could not handle this scenario. On January 4, 2019, Powell said he will be “patient” on rate hikes and has reiterated his dovish stance in subsequent Fed meetings. After the March meeting, the Fed signaled no rate hikes in 2019, and one in late 2020. Personally, I think this was a much more political move than the Fed would ever admit because they probably don’t want to disrupt the upcoming U.S. presidential election. However, I don’t care about any of this. All I need to know as a money manager is that we are still in a globally coordinated effort to keep interest rates low and the markets high. This environment is favorable for stocks and justifies higher valuations. The biggest factor that would change my bullish stance is if the Fed retreats their stance and hints at raising rates again. Until then, I am not going to fight the Fed.


Sentiment usually moves with price, as the majority tends to get more bullish when the market goes higher and vice versa. Although we are sitting near all-time highs, sentiment is rising but nowhere close to the extreme bullishness that we’ve seen in the past. My feeling is many people not only got hurt during the fourth quarter correction last year, but also missed most of the move so far in 2019. Many of the surveys are showing that institutional money managers still have low exposure to equities. If the market continues higher later this year, many of these managers might be forced to put money to work or face possible career risk for missing out.

Charts are provided by MarketSmith.

We continue to be in a favorable environment for stocks. Of course, the market will not go straight up every day and we will see corrections along the way, but it’s best to stick with the trend until the big institutions show signs that they are consistently exiting this market. Many statistical studies show that when we see this much strength in the early part of the year, it usually leads to more strength 6, 12 and 18 months out. Any hawkish change from the Fed might derail this uptrend, but for now, I am sticking to the blueprint outlined in the chart above. We might be just starting to enter the acceleration phase of this bull market and that possibility would likely catch most market participants off guard.

Read more:

The single biggest reason markets dropped so hard last year — interest rates

I can be reached at: jfahmy@zorcapital.com

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