U.S. Stock Market - Are There Any Real Bears Left?

Most major U.S stock market indices posted record highs last week, including the Russell 2000 Index of small-cap stocks which lagged the overall market for most of August.

While some technical analysts are pointing to relatively low volume as a reason to be skeptical of this latest advance into record territory, one observation is abundantly clear and without reservation: Bearish traders and investors have been mauled because there have been no meaningful corrections in the stock market since Donald Trump was elected President in November of last year!

Those is the bullish camp are apparently "fearless" right now, and not even hawkish rhetoric from the U.S. Federal Reserve in recent weeks can get them to sell their precious stocks! The Fed is now indicating that it will begin to liquidate its $4.5 trillion balance sheet in October, hike short term interest rates again in December, and then hike interest rates three more times next year! Wow!! Some uninformed Wall Street pundits are actually now claiming that these normally bearish pronouncements are actually bullish for the stock market! While I have to give the bulls credit for hanging tough here, I will NOT buy into the idea that liquidation of the Fed's balance sheet is bullish for stocks, and I will definitely not buy into the idea that 4 expected interest rate hikes over the next 14 months is bullish for stocks!

Besides the argument that stock prices may be over-valued on a historical basis, is there anything that can even be considered remotely bearish right now?

Potential "black swans" on the international front look more than interesting to me here. The German election results this past weekend MUST be considered negative for the European Union given the German AfD extreme right wing party's surprisingly strong performance at the polls (+13.5% of the vote). In Spain, despite Madrid's complete lack of sponsorship, the Catalan separatist movement looks bound and determined to move ahead with an October 1st Independence Referendum. While I doubt there will be a civil war, this CAN'T be good for Spain! And largely under-reported is tomorrow's independence vote by Iraq's Kurdistan region. Unlike in Spain, there is no guarantee that civil war won't break out again in Northern Iraq as Kurds fight for their independence! The Trump Administration is actually talking about the possibility of breaking the Iran Nuclear Deal (as negotiated by President Obama). This may result in catastrophic consequences. Of course, I haven't even mentioned that small problem on the Korean peninsula, where Kim Jong-un, the Supreme Leader of North Korea, has threatened to set off a hydrogen bomb in the Pacific Ocean and maybe even launch a nuclear preemptive strike against Guam!

Closer to home, the negative price action in the following key stocks last week could be considered support for any bearish case in the U.S. equity market immediately ahead:

Tesla (TSLA)                        -7.6%

Apple (AAPL)                      -5.0%

Amazon (AMZN)                 -3.2%

Johnson & Johnson (JNJ)    -2.3%

Microsoft (MSFT)                -1.2%

FaceBook (FB)                     -0.6%

Nasdaq-100 (NDX)              -0.9%

Weekly chart sell signals were triggered by my computer trading system at Friday's close in NDX, TSLA, MSFT, JNJ, IP, and PG.

Monthly chart sell signals were triggered by my computer trading system in ORCL and XLU (Utilities ETF).

Monthly chart buy signals were triggered in the 10-year T-Note Yield and also the 30-year T-Bond Yield (see charts below).

Bottom line: The next major move in the U.S. Stock Market will be to the downside! Higher short term interest rates, pressure on corporate profit margins, renewed recessionary fears, and less accommodative central bank monetary policies on a global basis will contribute to the end of this incredible bull market in stocks that has now lasted 8 1/2 years!

10-Year Treasury Note Yield Monthly Chart with Computer-generated Buy & Sell Signals

30-Year Treasury Bond Yield Monthly Chart with Computer-generated Buy & Sell Signals

Tesla Weekly Chart

Apple Weekly Chart

Amazon Weekly Chart

Johnson & Johnson Weekly Chart

Proctor & Gamble Weekly Chart

Nasdaq-100 Index Weekly Chart

Microsoft Weekly Chart

U.S. Stock Market - Outside The Box

Most major U.S. stock market indices posted record closing highs this past Friday, September 15, 2017. And many pundits on Wall Street and most investors on Main Street now see even higher prices for stocks ahead.

According to the latest University of Michigan survey, 65% of investors surveyed now think that U.S. stock prices will be higher a year from now. As you can see from the chart below, this 65% figure is a new all-time record high.

Latest University of Michigan Consumer Sentiment Survey

In my computer trading system, weekly chart sell signals were triggered last week in key stocks like Adobe (ADBE), Coca Cola (KO), McDonalds (MCD), Oracle (ORCL), and Yum Brands (YUM). However, new found strength in the energy sector helped the broader market indices to record high ground.

Oracle (ORCL) Weekly Chart with Computer-generated Buy & Sell Signals

So where do we go from here?

The Federal Reserve meets this coming week to discuss significant potential changes to its monetary policy. It is now widely believed that the Fed will begin to unwind its massive balance sheet immediately ahead. And the Fed may even telegraph another interest rate hike between now and year end! While tighter monetary policies are normally considered a negative for the stock market, investors don't seem to believe the steady stream of recent hawkish rhetoric from Fed officials ahead of this week's key meeting.

Massive hurricane damage throughout the South over the last several weeks is being viewed as bullish for stocks as reconstruction funds provide much needed "fiscal stimulus" for the economy. While 3rd quarter GDP results may take a minor hit as a result of this hurricane damage, it is widely believed that a rebound in GDP will soon follow in the 4th quarter and early next year as fiscal stimulus takes hold.

So what's not to like? Here are three potential negatives for stock prices:

1. Three major global central banks appear poised to tighten monetary policy immediately ahead (the U.S., the UK, and the ECB).

2. Corporate share buybacks are significantly lower this year, down about 20% from last year

3. According to the latest weekly report from the American Association of Individual Investors (AAII), investor allocations to stocks are near a record high while cash reserves are near a record low (see chart)

Latest AAII Weekly Survey

An interesting story is beginning to get more attention in the media. There appears to be evidence of vote tampering in several key swing states in the last Presidential election when Donald Trump won a surprise victory over Hillary Clinton. Influential former Vermont Governor Howard Dean thinks there may actually be credibility to the story that votes were "flipped" in major key Democratic strongholds like Milwaukee and Detroit. Since Donald Trump won Wisconsin and Michigan by the slimmest of margins, potential vote tampering could easily have changed the electoral results in those two key swings. Voter result irregularities are now being investigated, and the early evidence of potential hacking into electronic voting machines is compelling, at least on a statistical basis. For your review, I have listed three URL's that highlight some of the early investigations into this issue. Could Hillary Clinton have actually had the Presidential Election stolen from her? Was the "system actually rigged" as Donald Trump claimed it was almost every day from the moment he entered the Presidential race in June 2015?

www.unhackthevote.com/

www.votesleuth.org/

www.bluedotdaily.com/howard-dean-evidence-suggests-russia-falsified-votes-for-trump-victory/

My own view is that the "Russian Connection" to the Trump Administration will soon become as dominant an issue on Wall Street as it is now on Main Street. Special Prosecutor Robert Mueller's investigation of Russia's interference in our November 2016 National Election appears to be moving forward rather quickly now, and investors should not be surprised to see actual indictments handed down before the end of this year! Investors hoping for major tax reform (tax cuts) before year-end 2017 are likely to be disappointed, despite recent positive comments on this issue from Treasury Secretary Mnuchin.

Bottom Line: A major stock market correction is long overdue! While equity prices could easily retreat on the basis of valuations alone, my educated guess right now is that a "black swan" event or a surprisingly hawkish Fed proclamation will serve as the catalyst for the next market decline. President Trump is scheduled to speak before the United Nations this coming Tuesday. I personally doubt that President Trump will be the picture of diplomacy in his UN speech which will almost certainly address the ongoing crisis on the Korean Peninsula.