Notes to Ponder as We Start the Week

nasdIn case you missed one of the thousands of headlines today… the NASDAQ hit 5000 for the first time since 2000. The amusing part of that is I still have the front page of the USA Today newspaper when that event took place in the go-go days of the dot coms. It was an interesting time for all who were involved in the stock market as an investors or adviser. Not long after this feat was accomplished in March 2000… music from the twilight zone is playing in my head, The index topped and fell to a low of 1108 in October 2002. I have a second headline from USA Today in December 2000 with the index near 2300 stating it may be ten years before the index would reach 5000 again. It ended up being just over twelve years, but that was pretty good guess for the time. For everyone around at that momentous occasion it is interesting to watch the index recover after all this time.

Of course this begs the question: Now what? That is anyone’s guess, but technically speaking the target for now remains 5062 based on the trading range breakout short term. Short term the Relative Strength remain positive, but slightly overextended. Bottom line from my view, enjoy the ride adjust your stop according to your time horizon and let it run for now.

Crude oil is at $49.85 after a tough week of trading for the commodity. The trading range is developing and the bottom established for now. The challenge comes with the outlook for demand rising to meet production/supply. Or we could reverse the equation and state that supply has to fall to meet demand. The latter is much more destructive to the picture in my view as we are shuttering rigs to accomplish this and if demand rises it will take time to bring supply back on line and thus put upside pressure on prices artificially. This is anything but a simple problem to reconcile. The volatility in the commodity has risen and the stocks in the energy sector have equally been volatile. I am willing to wait… let this unfold and gain more clarity before putting my money at risk when it isn’t warranted. A move above $54 in crude would be of interest or a break below the $45.45 level on price. The trading range is narrowly defined for those wanting to accept the risk of the volatility and trade the range. Too much risk for my taste currently.

The Volatility Index (VIX) managed a 35% drop in nineteen days in February. That ties it for the biggest drop in history. The key is to realize the drop in volatility to this level is not a guarantee of a market correction a bounce back in volatility. That would need some uncertainty to return to the market and for now that seems to be unlikely as investors are more focused on the new highs versus what is going to happen moving forward. A test of the 11.9 low is not out of the question at this point with the close at 12.9 today.

Personal consumption remains a hot topic for many analyst as the consumer services (XLY) and retail (XRT) sectors continue to push to new highs. One popular belief has been that the savings on gasoline would trickle into the spending habits of consumers, but the real savings are showing up at $7.50 per week per automobile. Not really enough to drive the sector much more than what we are already experiencing. A interesting note to the economic spending habits of Americans was released by the US Bureau of Economic Analysis (BEA) last week… Q4 spending for healthcare (number one outlay outside of housing) increased to $21.4 billion or 18% of GDP. It looks like those saving may be going to the new mandatory healthcare premiums that also rose more than 12% in 2015 over 2014 levels. This is a tangled web for middle income households. The Affordable Care Act is again becoming non-affordable for those it was intended to help.  As I have stated in the past… if I want to afford healthcare premiums going forward, buy healthcare stocks to keep pace with the increases. Too many assumptions by the Congressional Budget Office that are not panning out… next step… government run healthcare?

There is plenty to deal with this week as we move forward, but for now the upside trend in control and investors continue to commit to the long side of the market to participate in the growth. Set your stops and take what the market gives for now.