This past week my inbox was filled with a combination of OMG! emails that fell into two categories: 1. “OMG! The rain, the floods! Are you alright?” And, 2. “OMG! Holy shit are we really up _%!?”
We are drying out and I never imagined that I’d have a tear in my eye yesterday at the site of a train-length convoy of Army Corp. of Engineers rolling 30 mph on a 2-lane mountain highway that could have had the the soundtrack of the “Empire Strikes Back” in the background. And those guys are greeted here like the liberators of Paris for the task at hand of restoring the roads to our mountain passes.
But lets get back to “Too much of a good thing”. Rallies do have a lifespan and this present rally is showing its age but that doesn’t mean its about to roll over any time soon. Ignore the common “the market is due for a pause”, this market has been due for a pause almost all year long. In my opinion the rally will most likely end by either a change in Monetary Policy or dysfunction from Washington that creates the impression that our favorite politicians don’t have the ability to maintain positive growth policies.
Consider the chart below. You’ll notice that the # of new highs as shown by the gold bars is not keeping up with the ongoing market rally. This means that the present rally is becoming more selective and fewer stocks are moving higher. While we all would love to see the rally continue, that sentiment is pointless in the real world. There will be a pullback at an unknown date in the future that will likely be the pause that refreshes.
Does this mean that we should begin to reduce our exposure to stocks? IMO, no. Always respect the primary trend in the stock market otherwise your portfolio growth will be stunted by continual bouts of selling and buying based on emotion. Also, we could sustain another 1 or 2 bursts of growth before the correction begins. Odds are that the pullback will be shallow since we have no imminent signs of recession looming. Its quite possible that any pullback may only bring us back to where we are now and that’s not a bad thing at all.
Even Mae West needed a break once in a while.
Brad