The Incredibly Important Big Picture

By Chris Ciovacco

THE VIEW OF THE STOCK MARKET THAT IS RARELY TALKED ABOUT

“Sound strategy starts with having the right goal.

— Michael Porter

The current leg of the NASDAQ’s rally began on February 11, 2016 or 907 calendar days ago. The NASDAQ made a new all-time high on July 25, 2018 and then fell sharply for 3 days. Many were saying the tech-led rally was coming to an end. While that may turn out to be the case, a 3-day drop has almost no impact on the math related to a trend that began 907 calendar days ago. As shown below, the really big picture for the NASDAQ still tells us to remain open to much better than expected outcomes in the coming years.

short-takes-ciovacco-big-picture-tech-3.png

WHY EVERYTHING YOU KNOW ABOUT ASSET ALLOCATION IS ABOUT TO CHANGE

In this week’s stock market video:

  • The single best signal.
  • Your pie chart may disappoint in the next 20 years.
  • My bonds seem to be acting differently.
  • The lure of past balanced portfolio performance.
  • Has diversification worked well in 2018?
  • It’s all we know (recency bias).
  • Haven’t seen anything like this in 35 years.
  • The market has changed and we may have to adjust significantly.
  • The real world 1926-2018 vs. perceptions.
  • Is bullish momentum waning?
  • Should we be concerned about breadth?
  • But, we are near all-time highs.
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LONG-TERM BREAKOUT IS HOLDING

A common bearish argument says the stock market is being led by only 4 or 5 major stocks. The chart below clearly demonstrates the average stock is participating in the current bull market. The Value Line Geometric Index contains approximately 1,700 stocks and is equally-weighted. The index recently broke above levels that acted as resistance in 1998, 2007, and 2017.

short-takes-08-06-2018-xvg.png

THE END OF THE NORMAL CORRECTION IN STOCKS?

While the S&P 500 has yet to recapture the highs made in January, many other major indexes have pushed to new all-time highs, including the broad Wilshire 5000 Index as noted by Mark Hulbert on MarketWatch.

short-takes-end-of-correction.png

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Gary

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