Expert: “A Man 50 Miles from Home with a Briefcase”
“A few solid pros are more powerful than dozens of cons.”
- Steve Jobs
Prepare to see and hear the worst about America over the next couple of weeks.
It will be a Wimbledon-like volley of ridicule, insults, and offensive statements, until such time as the votes are all cast, and the media has exhausted and wrung out every ounce of vitriol into page views and advertising dollars.
Meanwhile, the latest earnings season has launched, and we are rapidly working our way into its busiest weeks. Beat rates are already in the mid-80s, reaching that level even more quickly than we did in the last quarter.
We rallied into the earnings season.
So, after a September pause, markets have come right back and are just single digit percentage points away from all-time highs.
That said, many long-time readers will know that we prefer to see markets soften up a bit before the earnings season starts instead of having the gangbuster type of entrance we’re now experiencing.
Why?
Well, it has to do with crowd psychology and sentiment.
You see, if a market falls and chops prior to a flow of data like earnings, the stage is set for "Oh, that's better than we thought..." syndrome.
On the other hand, a market rallying into an earnings onslaught is more at risk of a posture like...."Hmm, yea, well that's good - but we expected that, hence the previous rally...."
The latter often results in more choppy action - and even a selling wave after the news is registered.
If I were to guess I would suggest we have set the stage for the latter scenario, and that we may very well see choppy action as we approach a) new highs, and b) the all-important election.
The Larger Picture
As markets have found themselves pushing back up towards previous highs during October after a sloppy September, the "Sell in May and go away" mantra has once again proven not to have worked out all that well for traders.
(It's why we focus on investing for the long haul.)
The major averages have moved right back up to within 1.5% to 3% of all-time highs, depending on where you look.
And while we’ve been distracted by the talking heads repeating each other’s sentences in slightly different ways, something rather incredible has been missed.
The long forgotten (and often ignored) Dow Theory is about to be triggered, yet again.
The Dow Theory is an upward trend that happens when one of its averages (i.e. industrials or transportation) advances above a previous important high, and is then accompanied or followed by a similar advance in the other average:
This time it has started with Transports.
Who'd a thunk it? In all this mess, Transports are rocking.
So, what does it tell us? Well, in simplest terms it means the lifeblood of this country is doing just fine, folks.
Materials are moving across the land. And we are set to hear more and more about how manufacturing and supply chains will be moving back home, so to speak.
You can see the footprints in the sand here:
The Dow Industrials chart above is just below all-time highs.
What we’re witnessing looks like a repeat of the psychological battle seen after the Great Financial Crisis in 2008-2009.
Remember that for years afterwards the naysayers said all the "growth" was "Fed-fuelled", fake money, and inflation tinder.
The same chatter is going on today. The problem? By the time the crowd figured out these “experts” were wrong, the markets had moved up 400% and 10 years had passed them by.
The Reality
Cars are moving, homes are moving, people are moving, factories are moving, appliances are moving, big ticket items are moving.
People Make Markets™ and the largest generation of people to ever hit the US economy are just beginning to make their own way in the world. Demand will surge in the coming years as they move to new homes and start building their own families.
And years from now, we will look back on this time window, this crazy, confusing, fear-driven time window, and realize that a massive launch pad was being constructed across the land.
Vast opportunities were being seeded. Significant "spring-loading" was taking hold. And the patient investor was set to be rewarded.
You just need to decide if you’re going to be one of them.