Leon Tuey on the markets in Late August, 2018

Leon Tuey on the markets in Late August, 2018

Why the motor mouths on Wall Street have so much trouble predicting the market's direction is difficult to comprehend. All they need is a clear understanding of the market's logic, the economic cause/effect relationships that drive the markets. They need to have an understanding and appreciation of the mandate of the Fed. As pointed out on numerous occasions, one of the key mandates for the Fed is to “maintain orderly economic growth and price stability.” It’s a dual mandate and it is statutory. The only other thing they need to remember is that the stock market is a leading economic indicator; the economy does not lead the stock market. When the economy slows and heads into a recession,

investors don't need an IQ of Mensa to know what action the Fed will take; the Fed will use all means at their disposal to turn the economy around. (The most powerful tools at the Fed's disposal to affect monetary policy changes are the Basic Monetary Policy Variables - the Bank Reserve Requirement, the Discount Rate, and the Margin Requirement. I wonder how many gurus on Wall Street ever heard of this?). If it doesn't work, they will keep easing until the economy responds. The market being a leading economic indicator, therefore, always bottoms six to nine months before a recovery begins, not after

Conversely, when the economy overheats; inflation surges; and speculation is rampant, the Fed will tighten monetary policy by raising the Discount Rate multiple times in succession; by draining liquidity from the system; and invert the Classic Yield Curve. The market, being a leading economic indicator will have peaked and started to head south long before the onset of a slowdown or a recession. This is like night follows day. Yet, this simple logic escapes most on Wall Street. Anyone with an IQ slightly above room temperature would understand this

Last week [August 13-August 17], "the market" reached another record high. "Not so!" growl the bears. No doubt, they will point out that the S&P 500 Index and the Dow Jones Industrial Average have not exceeded their respective January high. Clearly, they don't know which end is up. These are the same folks who will tell you that "the market" bottomed on March, 2009 which it didn't. "The bottom" was on October 10, 2008 when globally, investors panicked. On that day, over 90% of the U.S. stocks and most other world markets made their lows. These are the same folks who were certain that a bear market commenced in February, 2016, right at the bottom of the correction and a powerful rally ensued. In

February of this year, they all thought the world was going to end, again.

If they take their eyeballs off the major market averages; look at "the market;" try to understand the market's logic; and stop reacting to the headlines, they will see the world differently. Take a gander at the various internal measures. Last week, the following Advance-Decline Lines closed at record highs -SPX, DOW, NYSE, NYSE Common Stock Only, S&P Mid-Cap, and S&P Small-Cap. These A-D Lines tell investors more about "the market" than any market index. Given their bullish action, investors can absolutely be certain that the S&P and the Dow, too, will see record highs.Also, the S&P Mid-Cap Index, the S&P Small-Cap Index, and the Value Line Arithmetic Index closed at record highs.The Wilshire 5000 Composite Index stands within spitting distance of its record high and new highs are assured. By the way, two weeks ago, the NASDAQ Composite Index hit another record high

Make no mistake, Ladies and Gentlemen. You are witnessing the greatest bull market on record and the best is yet to come. Despite its longevity, this bull remains a calf.

Take partial profits on stocks that are grossly overbought and show a loss of momentum. Accumulate stocks that have broken out of long bases and become oversold. But stay invested. As mentioned, one of the biggest mistake investors make is selling too soon in a bull market, particularly in a market such as this

Earlier this year, many talking heads felt that the market has seen its high for the year and some even declared that a bear market had commenced. Bear market? What bear market?

Given their lousy track record, one wonders how they even have a job. Thankfully, they are not in the medical profession. As mentioned before, if these talking heads expend some effort trying to understand the market's logic instead of flapping their gums incessantly, they would improve their performance. Ignorance is bliss, I suppose. What about the Dow Jones Industrial Average and the S&P? Rest assured, they, too, will reach record highs.

Resources,

https://www.raymondjames.com/pdfs/share/morning_tack.pdf

The above material was edited by myself. As always interesting comments from Mr Leon Tuey. I include it here primarily for his instructive comments on how the Fed takes action to control monetary policy and his views on the importance of the 'breadth of the market'...Personally I don't like to forecast the future but I think its important to know what the market is currently doing and where it might be in its overall cyclic pattern.