I was on CNBC Friday after the bell with Maria Bartiromo and Abigail Doolittle of The Seaport Group. We were talking about the S&P 500 new highs, what it means and what you should do now.
This was a fun segment, as I was the technicals guy and Abigail was on the fundamentals. Definitely more of a spirited debate than some of the other segments I usually do. I focused on two charts that suggest the bulls are still in control and prices will continue to go higher from here.
First off, the SPY is in a nice upward trending channel and has been since late last year. Also, its 40-day moving average is down near the lower channel. This moving average has been support multiple times going back to late December. As long as the SPY stays above these two areas, the bulls can continue to push things higher.
Next, on a much longer-term perspective, the SPY just broke above the 2000 and 2007 peaks. There were many vocal bears saying this was going to make a big triple top and subsequently fall 40 to 50% like the previous two times it was up here. Interestingly, that hasn’t happened and now the bears are probably going to fuel the next leg of the rally, as they are forced to cover their bearish bets.
Abigail then talked about SPX valuations and expected earnings. She is looking for a 10-20% correction sometime in the second or third quarter. I jumped in here and disagreed, as I don’t think any sell-offs will be that large. There have been two main factors in play the past four years. The Fed and disbelief of the current rally. Both of those are still in place. Also the recent AAII sentiment survey actually had more bears than bulls last week and the 10 week moving average of the bulls is down near a four year low. When it gets this low, that usually bodes well for continued overall market strength.
You can watch all the fun here.