As of Thursday, February 9, 2017 at the close of trading EquitySurge™ has continued a strong sell signal for USA equities.
Equity markets climbed higher on Thursday and closed at new all-time-highs on the DOW, S&P500, and NASDAQ Indexes.
There is no doubt significant anticipation and excitement about what kinds of tax reform, regulatory reform and fiscal stimulus the Trump Administration is going to propose and put forth to the Congress to enact into legislation. The equity markets seem to be hanging on every word or Tweet from The President in this regard.
However on the flip side, the bond market, which is far larger than the equity market, continues to warn about this rally in stocks. The Treasury bond market yield curve continues to flatten, a bellwether warning about the real health of the economy.
Also if we look at historical stock market patterns, in 27 of the last 29 first years of new presidents, equity markets have been negative year-to-date at some point in the first 6 months of the new administration’s first year. The average negative drawdown during those periods is 7 percent. What does this mean? It means that 27 out of 29 times stocks sold off on average 7 percent in the first 6 months of a new president’s first year. Those are incredibly high odds. Could it be different this time? Perhaps. Would you rather take the risk of it being different, or go with the odds and assume that it won’t be? 27 out 0f 29 times is a 93 percent chance that stocks will sell off with an average drawdown of 7 percent in the first few months of this year. From current levels on the S&P500 Index of around 2300, that’s a drawdown to around 2100-2150.
Would you rather stomach that decline and remain long, or sell near the highs and have cash ready to deploy after that drawdown (assuming conditions at the time are right to go long again)?
We have advocated to sell into this rally, and if you went long this time last year when EquitySurge issued strong buys around the 1800 level on the S&P500 Index, you have been handsomely rewarded. However now you have the market significantly stretched on technical valuations, the bond market yield curve is flattening, you have warnings from liquidity and you have 93 percent odds on your side that there will be a drawdown in stock prices of around 7 percent coming in the near term. Remember, the goal of stock market investing is to buy low and sell high.
If you would like to review the EquitySurge™ trading signals generated in 2016 and so far in 2017 please see the Trading Signal Performance Chart page.