Market Direction and Stock Trends

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The call for this week
By Jeffrey Saut | August 14, 2017

Remember, immediately prior to late last week’s weakness, the Dow Jones Industrial Average had closed up 10 straight sessions, and nine of those were at all-time highs. The stock market just does not typically collapse from a period of strength like that. Bespoke Investment Group looked at all previous eight-session or longer streaks of consecutive record closes going back to 1928, and the one, three, and six-month returns going forward were all comfortably better than average (see Chart 2 on the following page). We still advise some near-term caution as we wait for more definitive signs of a bottom to be reached, but, as illustrated recently, there remains quite a bit of support underneath the S&P 500 (see Chart 3 on page 4) to hopefully prevent a major decline. The saber rattling may continue into this week, but we will also get a busier economic calendar to possibly provide alternative talking points. Obviously, the situation could devolve very quickly should tensions escalate further, so, to repeat, there’s nothing wrong with managing risk and protecting the downside. Yet, for most long-term investors, we continue to believe the secular bull market will reward those who remain invested and don’t think getting too defensive is warranted at this time. The U.S. futures seem to agree this morning, with the major average bouncing a bit, but it will take a daily close above 2460 in the S&P 500 to help convince us the market has moved on from North Korea for now.

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