1.19.14: Weekend Linkfest: The 2-Year Presidential Cycle Gains Traction

@361Capital and Blaine Rollins. Health Care continues to lead SP 500 this year-to-date. 361’s Monday night piece is one of the best reads of the week. Be sure and get on the email list. (Long AMGN, MRK, PFE, JNJ)

The thread that best explains the hiatus in the 2013 equity market rally is the “Presidential Cycle 2-Year Curse” per Jeff Kleintop at LPL Financial. Jeff is an excellent strategist, and he cites the established pattern of a flat SP 500 9 – 10 months into the second year of the Presidential Cycle, and then a rally into year-end.

Josh Brown on the SP 500 hitting all-time highs. Should we prep for a crash ?

Ryan Detrick was on the radio and TV airwaves this week, citing this (record high VIX OI) as bullish for stock prices. Here is an article from Cincinnati newspaper identifying Ryan as the top stock picker in 2013. A lot of fundamental guys thumb their nose at technical analysts. Bad decision.

There is an old saying that markets correct through “time” and / or “price”. The flat-lining SP 500 since Jan 1, ’14 means a lot of bullishness being worked off, simply as stocks tread water, per Phil Pearlman. Liked that graph.

Another great column by Ryan Detrick on how, even with record stock prices, retail investors (per Gallup), still think investing in stocks is a bad idea. (Note: the survey sample was just 1,000 adults. My own opinion on this lack of interest in the stock market is that the Baby Boom generation, of which I am at the tail-end, is now 13 years older when the SP 500 last hit an all-time high, and they are eyeballing retirement. This warrants a longer article or opinion.)

An under-the-radar website, “This Week On Wall Street” (TWOWS) featuring Gary Morrow and Doug McKay… The gold-bugs have always fascinated me. It is like perma-bulls and perma-bears within the litany of stock market opinions. The tune never changes. Note the chart on GLD and the US Dollar (UUP). While Basic Materials and Alcoa (AA) were our sleeper sector and sleeper sector coming into 2014, I do think the US dollar is set for a period of prolonged strength. The UUP is one way to play it. Ive used it before, but we’ve already seen a dollar strengthening versus the yen. We need the euro to weaken to give UUP some game, since the UUP sports a 57% euro weighting. Morningstar has some good research on the UUP. Take a minute and read it if you can. (long AA, X, FCX)

Personally, I love this graph, compliments of @Soberlook and @uKarlewitz. This is a meaningful valuation measure. Just tells me we need to unleash the drivers of economic growth, as much as it is a cautionary take on SP 500 valuation.

The Fat Pitch by UKarlewitz is quickly becoming a must read. Love this work.

Finally, Moody’s Investors Service, the rating agency, doing some yeoman work on the pension expense and the 2013 equity markets. Great stuff. Article to be published on this blog tonight or tomorrow, from an article Wesley Smith wrote for Moody’s. You might be surprised at the numbers and what it portends for the SP 500. I couldn’t attach the article but our article will contain Wesley’s work and some other detail we found elsewhere. I think you will find it interesting.

Thanks for reading. There is a lot of competition for your eyeballs and we appreciate taking a minute to view the work that we think is first rate. We are finding more and more “valued-added” bloggers every week.  Because of the 2-year cycle, and some of UKarlewitz’s work, I’m a little bit more bearish about the next few months. Our Weekly Earnings Update too left me a little nervous. I’m not really a market-timer, so a 10% correction would be perfect. I seriously doubt if we are on the cusp of a 2001, 2002 or 2008 bear market. Jeff Miller articulates my angst in his latest article this weekend.

Would love to see bullishness turn to negativity, at least a 10% correction, and the SP 500 test some longer-term support near 1,800 and then 1,700. A test of the SP 500’s 200-day moving average at 1,700 would be just a 7.5% correction and consistent with the last 3 corrections we’ve seen. However the small-caps and the high yield ETF’s, our early-warning canaries, don’t seem too worried.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

 

 

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