Tech Is Really Where You Want To Be
October 18th, 2019
Join Chuck and Ken while they discuss the current state of the market on the Money Life Network.
Transcription
| Chuck: | Welcome back to Money Life, where it’s now time to get a technical take on the market. And I’m very pleased to welcome back to the show Ken Berman. He’s strategist at GorillaTrades. So long as you know the name of the company you know where to get information because it’s GorillaTrades.com, and they’re on Twitter @GorillaTrades. It has been a while since Ken Berman has been back. Here I’ll point out, because I’m always happy to do this, that Ken, like me, is a Wolverine. He’s a University of Michigan graduate. But right now he’s my guest on the show. Ken, good to have you back. |
| Ken: | Thanks it’s always a pleasure Chuck. |
| Chuck: | So, we have to start with what you see happening right now in the market has been sideways here for a long time. It’s threatened to get through resistance. It’s threatened to break through support occasionally. But what’s happening here, I mean, it seems to me like we’re directionless. But are you seeing a direction that we’re headed? |
| Ken: | As you know, I like looking at the moving averages in combination with short term indicators, So, if you look at the charts the major indices right now, both the rising 50-day and the 200-day averages are pointing higher. And the 50-day moving average, more importantly, is above the 200-day moving average. Thus, the trend line analysis tells us that stocks are still trending higher in all time frames. So, if you look at short term momentum indicators, such as the MACD, they’re neutral thanks to the sideways action that you just mentioned, in the past couple months. Which could be setting up the stage for a major technical breakout. |
| Chuck: | Okay, so what that means is you are very bullish. A major technical breakout. Very bullish. Anything else that makes you so bullish? |
| Ken: | Well you know interestingly, the current long-term patterns are very similar to the one that we saw mid 2016, just ahead of historic rally. Seasonality also favors the bulls in the coming months, as you know. Some stocks went nowhere for almost two years. This quarter seems to be a perfect candidate for decisive moves. I think new all time highs even though I see weakness in small caps, which is a bit worrisome, to me. Like you said, I’m still very, very bullish. |
| Chuck: | I understand why you’re bullish, but we do have a market that’s near record highs. And if it’s going to be bullish it’s going to break through that get to new highs. Aren’t we getting to a spot where you’re at all worried about valuation? |
| Ken: | Actually the PE ratios for the major industries, they, they’ve been edging lower while dividend yield are ticking higher. And since treasury yields fell significantly the Dow and S&P now support higher yields in the ten year treasury. |
| Ken: | So recently, get this, even the 30-year yield dipped below the and S&P 500 dividend yield for the first time since 2009. Additionally, the valuation metrics with the best long term track record, such as the Shiller P. ratio, or Warren Buffett’s favorite, the total market capitalization you know GDP ratio, they continue to be well above historic averages. Profit margins are very high and with global and US interest rates being at or near all time lows there’s, no reason to turn bearish right now. |
| Chuck: | What about headline risk? I mean there is some measure of headline risk, trade wars, and things along those lines. You’re not scared at all about those kinds of things? Because it’s technicals, yeah I’m looking at charts and trends, I’m not looking at headlines. |
| Ken: | The global economic slowdown is still real danger to stocks and other risk assets. And the fact that central banks are basically out of ammo could make the downturn worse. But an interesting disparity, exactly a year ago right now. Domestic fundamentals were clearly positive while technicals pointed downward. Today’s economical fundamentals are much weaker but technicals are bullish across the board. Looking at the other main risk factors, hard Brexit currently seems less likely. But until a final deal is sealed, obviously, you know it remains a possibility. The Middle East also continues to pose serious, I don’t know, geo-political risk. The Iran-Saudi standoff has the potential to further destabilize the region. While chaos in Syria also remains a threat. So, they’re out there but I don’t see them as hurting this buillish sentiment. |
| Chuck: | You know you talk about being bullish. What we haven’t actually talked about where if there are specific pockets are specific industries, things along those lines. So, bullish is one thing. But can you, can we narrow that down. Are there certain sectors that you particularly like and certain things that you maybe don’t like at all? |
| Ken: | It’s funny, I was just speaking to someone about this this morning and until we see a material improvement in that the global economic trends, I think large and mega cap stocks will continue to outperform. Utilities and consumer staples, they’ll also likely to be favored by investors still. Since the divergence between the US and the global economy is still substantial, obviously domestic-focused companies faced weaker headwinds compared to the more export heavy companies. |
| Ken: | But interesting, should the trade talks remain on track, and they seem to be as of right, now tech stocks will likely be strong but industrials and energy stocks, they could still could be in for an up hill battle. |
| Chuck: | Even though some people consider energy, and it’s really more utilities, to be defensive plays which is where anybody who’s nervous seems to be going? |
| Ken: | Yeah, I’m looking for more risk on type of situations. So, tech stocks, I think, once we seen all clear in the trade war, I think tech is where you really want to be. |
| Chuck: | Ken, great stuff as always. Thanks so much for taking the time out. Great to have you back. Look forward to the next one and of course, go blue. |
| Ken: | You’re right. Thank you, thanks for having me. |
| Chuck: | That’s Ken Berman everybody. He is a strategist at GorillaTrades, that’s GorillaTrades.com. And as always, you know the name of the company it’s @GorillaTrades when you go to Twitter. All right we are heading for home on Friday October 18th edition of Money Life. |
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