Confusing New Bases with Market Tops

Here we are looking in on the end of the first month of the summer haze.  

The charts below will help you see the picture of how things are “progressing” a little more clearly.

But with 10 more weeks of this season to go we think the "vaccine approved/found" announcement is less likely than moving just a few steps up and then a few steps back.

As for the news in general, expect it to remain suffocating. The volume will rise in line with the creativity of analysts and news anchors to describe the proposed arrival of new monsters.

Try a quarantine from all news channels instead. 

You might be amazed how well that works to brighten your day.

The Crowd Updated

If I were to sum up how investors are feeling just now, I’d probably say something like, “Deer in the headlights.”

They’re spooked across the board. The latest data from the AAII sentiment survey remains on a solid bullish tilt, with over 75% of the audience NOT liking the market.

The eight-week moving average is at an even more solid low of 28.30.

So, while it all seems dicey and the floor feels like it’s ready to drop out on you any second, it’s helpful to keep in mind that all the noise at all market bottoms feels (and appears) just like this.

Don’t expect red or green lights at times like this. Things don’t work that way. You only see them clearly in the rearview mirror.

The Tough Part? 

All new bull markets spend their first months - and into a few quarters - keeping the vast portion of the audience focused on the pain of the previous bear.

While our circumstances today are hard to describe as a normal bear, that was the outcome. And if the population decides to agree with shutting down all business then a bear market will unfold.

But is this really a bear in the true historic economic sense?

Some day schoolbooks will be written on the topic and while we can argue the merits and perspectives don’t expect agreement.  

For now, the building blocks of recovery are appearing where and how they should; slowly and steadily. 

The better news is that they are - as is often the case - being mostly ignored by the masses.  

I’ve often said during previous crises that once a crisis arrives, there is always a part of the audience that chooses to remain scared, almost as if the fear itself is a security blanket.  

That’s because if you remain focused on the bad, you’ll never really be disappointed, right?

Here’s some examples:

• Durable goods orders are up far more than expected
• The housing data last week is dwarfing last year’s numbers
• Last Friday the TSA hit 685,000 passengers yesterday. Is that ugly? Sure, when compared to a year ago this time (2.3MM). But it’s nearly 800% higher than at the bottom in April

Humans think good or bad now. Markets think better or worse next. 

We can be confident that the crowd is set to remain mired in fearful headlines and a mental framework which is likely to cause them to not feel better until new highs and beyond. 

Don’t let the red ink, chop, and trade range type activity shut you down and push you off your path.  

Boredom can be mistaken for problems.  

And long-term investors have learned that a lengthy trade range (i.e. choppy summer) is the formation of a new base of strength not a top.