Buy the Dip (BTD) Week 3

Market Update 2020-11-30.

The Dow rose 2.2% last week, briefly piercing 30,000 for the first time (all you long time Harry Dent fans and newsletter readers can now relax). Dent was not wrong; he was merely 21 years early). The Dow’s 13% advance so far in the November could be its best since 1987. It is getting lots of undue press from the same “news” channels who tell you about the worst month, ever after the fact.  Volatility, as measured by the VIX index continues to melt lower post-election, closing near 20 for the first time since February.  Investors are betting that the virus third wave won’t swamp the economy before a vaccine parts the clouds.

More positive stock news in that global equities rallied across the board last week.  The Nikkei/Japan (+4.4%) and NASDAQ/Technology (+3%) led the way higher, while the FTSE/UK (+0.3%) was the laggard. Health care (+11.1%) and energy (+8.5%) were the top performers, while materials (-1.5%) and consumer staples (-0.2%) were at the back of the pack.

Marty Zweig and the Breadth Thrust

Repeating again, on November 19, the US stock markets observed an extremely rare and positive trading event, a “Zweig Breadth Thrust”, named after the late financial markets’ trader and historian, Marty Zweig. Since 1950, for only the 24th time, his indicator exceeded 1.85x.  Of the prior 23 occurrences, only once were stocks down over the next 6 months. The average of the 22 up occurrences over the past 70 years was +13.65% with an average maximum drawdown of only 1.78% over the 6 months. (We have included the raw data for your review).  History does not always repeat and there are no guarantees, but this data can be viewed positively.

Trillions waiting on the sidelines

Additionally, while much is made on the news about stocks being at new all-time highs, one can see from the attached chart from FundStrat that there is still trillions of dollars sitting idly by on “the sidelines.” While institutional investors have been putting money to work the last 6 months, retail investors have largely been sitting on their hands waiting.

Money on sidelines has barely budged

As an additional chart of interest, we include the following from Fundstrat. This chart that shows Value versus Growth performance over the last 35 years brings to mind the question: Are we experiencing a similar “growth stock” extreme as we did in the late 1990’s when the baby boom generation was discovering the first wave of internet investing?  Is the current “SPAC”, EV/Electric Vehicle, hydrogen energy, and stay at home stock love affair simply the Millennials and Gen Z’s early stock infatuation valuation bubble?

MSCI World Value Index

Our view is that part of the answer lies in considering which way long-term interest rates are headed?  Will the 150 million Millennials and Gen Z’s in the USA (and billions globally) reaching peak consumption age, combined with all of the global money printing since the Great Financial Crisis of 2008-09 lead to a secular upturn in inflation over the next 10 to 20 years? Only time will tell.

Resources

Our complete second half outlook 2020 can be found by clicking here.

 

Weekly market updates contain general information and expresses views of Oak Harvest Investment Services. Data, articles, and information cited are believed to be reliable at the time of creation, but are not guaranteed. Nothing in this content is intended as, nor should it be regarded as, personalized investment advice. Strategies and ideas discussed may not be right for you.  Views and opinions expressed may change without notice and do not constitute a recommendation, or an offer or solicitation to buy or sell securities. In addition, Oak Harvest makes no assurance as to the accuracy of any forecast made. Indexes like the S&P 500 are not available for direct investment and your results may differ. Past performance is not indicative of future results. Investing involves the risk of loss.