Market Direction and Stock Trends

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Jeffrey Saut: The call for this week

* October 24, 2016

Chessboard?

Well, here we are, at the last week of October, which our models suggested would be the end of the window of vulnerability for the equity markets. Indeed, in late August, with the S&P 500 (SPX/2141.16) trading around 2193, our models telegraphed that mid/late-September represented a potential timeframe for a market decline. At the time, Andrew and I suggested raising some cash to take advantage of new investment opportunities, despite our consul that any pullback would likely be small (3 - 6%). Subsequently, the SPX declined into its 2100 – 2120 support zone, rallied back to 2180, and then retested the 2100 – 2120 level for an intraday top to bottom pullback of 3.6%. Sometimes it takes three downside retests before a correction is complete and this week we should find out if that is true this time. Meanwhile despite some recent softening economic stats, the Philly Fed survey has hooked up (stronger economy – Chart 1), 68% of the companies reporting 3Q16 have beaten the earnings estimates (Chart 2 - foots with our transition to an earnings driven secular bull market), bullish sentiment stinks (read: bullish – Chart 3), our model is turning bullish, and there is plenty of internal energy stored up for a decent market move if it gets going.

http://www.raymondjames.com/inv_strat.htm

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