Are You Nervous?

July ‎10th, ‎2018

Join Chuck and Ken while they discuss the current state of the market on the Money Life Network.



Chuck:Welcome to Technical Difficulties here on Money Life where we’re talking technical analysis because one man’s one, two, three, four is another man’s one, two, three, fourteen. That’s what can happen when you are looking at the market today. The guy we’re talking to looks at the market his name is Ken Berman, he’s strategist from Gorilla Trades and if you want to learn more, it’s They kept it simple @GorillaTrades on Twitter. Ken Berman welcome back to the show.
Ken:Thank you for having me here.
Chuck:So, the last time you were on the show was a couple months ago, it was in April and at that point well, the market had gone through something of a correction and you said, “We really didn’t need to be that worried.” Well, what I’m talking to people right now they are talking about a lot more nervousness and reasons for worry, in many cases. Although, I will tell you that just before we did this interview, I had a guy, you know, who was about as positive as anybody I’ve seen so I’m really curious, you know, you said, “The ballpark was alive and well.” That, is it still alive and well now?
Ken:You know. I was very impressed market’s resilience after what I refer to as the volatility apocalypse we had which was that pull back in February. Each of the major indices held their two hundred day moving averages really well. Panic much to safety. Now were at today. Since those lows the S&P has risen five percent. The Nasdaq and Russell two thousand games eleven and thirteen percent, respectively. Although, I like to see the Dow rise a little more than one percent it has. With yesterday’s out performance, I think overall the numbers speak for themselves.
Chuck:Well, that said, one of the areas that has been doing well it’s been small caps and I know that my previous guest Doug Cote from Voya was talk about how he thinks small caps, small companies are about to rally. I basically, start what he said was a second bull market. However, I also know that historically would small caps start to outperform technical analysts get nervous. Are you nervous?
Ken:Interesting. You know, either is an old adage. Market doesn’t and it’s all small caps have their time. This means, you know, toward the end of a bull market it gravitates towards smaller and risky companies. But you know the remarkable story small caps reason you won’t get a sign. I think the odds aren’t terrible we favor smaller domestically focused companies rather larger caps could very well be the reason behind this. Illegible…
Chuck:So, all of that being the case, is there anything happening beneath the surface, anything percolating that as you take your technical look at things you think could kind of bubble up here?
Ken:The only thing I see is worrisome Illegible and I can give you some statistics right now that would not only be hard for you to believe what they make you think we’re in the midst of a bear market. The performance the major indices or looked impressive they’re relatively near their high at all. The problem is that a very small percentage stocks are leading the way. In fact, the average large cap is down thirteen percent from its high. The average small cap stock, down fourteen percent from it’s high. The old eighty twenty rule or twenty percent of factor comes nearly eighty percent gain. So, for example, consumer discretionary stocks, they’ve been one of the better performing sectors this year. Making eleven percent overall but, interestingly, I would stock in that sector is down over sixteen percent. And you might wonder. “How?” right, Chuck?
Ken:Most restraint is being driven by the big companies like Amazon and Netflix in this case. They have a huge waiting the sector of the market caps. Another one, for example, the telecom sector, you probably, don’t realize it’s down more any other, it’s down nineteen percent from its high right now. The only other thing I look at is the percentage of the stocks above the 200 day moving average and it’s stuck about fifty percent right now. I don’t like it. That’s the only thing right now out there that’s kind of a concern of mine.
Chuck:Okay, well, you’re talking about concerns of yours but, from the sounds of it, I don’t have to worry that the market is overvalued because only a couple of things that few big names are over valued everything else seems of step back, right?
Ken:You know, I think earnings season which ironically begins this week will also answer the question for you. Current multiples, you got them elevated but they’re not unheard Illegible… between sixteen and twenty one scored multiple, not ridiculously high but certainly not bargain levels. Other things you can look at. The price of book, price of sales even on the high end of the ranges. So, based on the evaluation, all the models will remain strong to support the current prices and further price gains. One other thing I do look or giving you, you know, even lines and right now average dividend yield is higher than the yield on the ten year treasury. The two year treasury even at two point five four percent right now higher than the average dividend yield at current class lately.
Chuck:So, quickly ,where does the market go from here?
Ken:Where do we go from here? You’re sentiment is almost as negative it was back in February. Traders are going quickly. Changing your attitude since that many crash. The wall worry is in place and it’s helping out all time highs. It’s still likely a lot of retail investors are still waiting to reenter the market. Those players could be the one to propel the next leg higher in a bull market. On the other hand, which is a historic shorts in the past few months. I don’t know if you’ve looking but, most sorted issues are considerably outperforming the market. Now the bears, they represent a much smaller crowd of potential buyers. Despite the divergence in the market turn els. I keep advising long term sensibility intact. However, since global markets remain under pressure Illegible… You know, it could in fact domestic market. I would say risk management is now the name of the game.
Chuck:Okay, so, risk management is the name of the game because the market, the trend is still positive but, there’s a lot of stuff to be looking at. We’ll take a look and see how it plays out and check back with you in the not too distant future to see what you’re thinking then. Ken Berman, thanks for joining me.
Ken:Thanks for having me again Chuck.
Chuck:Ken Berman is strategist at Gorilla Trades. It’s and on Twitter @GorillaTrades. We’re heading for home on the July tenth edition of Money Life.
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