Why Are We Not In A Bear Market?

April 26th, 2019

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

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Money Life Interview with Ken Berman

Transcription

Chuck:We’re getting a technical analysis and we’re talking today with Ken Berman. He’s strategist for gorilla trades, if you want more information all you need to do is remember the name of the firm because it’s Gorilla Trades dot com and they’re on Twitter at Gorilla Trades. Ken Berman welcome back to money life.
Ken:Thank you. Thanks for having me back, Chuck.
Chuck:Always good to get a chance to chat with you. It has been a little while in the market conditions have changed. You were here, basically as we got into this year and at the end of last year, the start of this year. Well, you know we saw what happened. The market had that big tank and that it had a snap back and you were very specific when we spoke at the turn of the year that you did not think what happened was a bear market. So, why were you convinced that that wasn’t a bear market and it was only a correction?
Ken:You know, I’m not a genius. There was a chance for that correction would have been the start of full fledged bear market but I was looking at technicals and fundamentals both and they suggested otherwise. One thing I look at is the key. The long term trend lines and they remained intact and since historic rallies that we’ve seen since the two thousand and fourteen, two thousand fifteen corrections. You know, they led to an overbought state and you know, there was overly bullish sentiment. So, along a deep correction it was in the cards and that’s what I thought it was. The major indices turned higher from their monthly trendlines. Sense of assets that we were monitoring, like high yield corporate bonds in small cap stocks rebounded strongly. The lack of negative divergence with a kill is a strong sign that the steep selloff was led by emotion not fundamentals and while rising yields, the trade war, no global economic slowdown, Brexit were all behind the correction. The domestic economy remained robust and aside from a few weeks in December the main risk measures were not bearish. So, you know, I have a good feeling that was just a a pull back and it turned out to be that.
Chuck:Yeah, it did. And now, the market rebounded and after the big snapback rally it then flattened out and it basically stayed flat as a lot of people adopted a wait-and-see till basically, this week, this piece of earnings season. So, now we’re back right around all time highs again. I don’t think anybody’s thinking that the market is going to go, “Hey look at how well we did in the first quarter. Just, you know, expect that to occur in four straight quarters.” But, can we can we hold these highs and go higher from here?
Ken:You know, technical goals remain bullish across the board. Breath measures, like for example, I’m looking at stocks above their two hundred day moving average. Their at levels that we haven’t seen more than a year, you know? There’s still room for improvement but market internals are no longer showing the negative diversis like they were before the correction. Look at international headwinds, they lead. European, Chinese equities of actually showing relative strength in recent weeks. The volatility index it collapsed, it’s back in a range consistent with a healthy bull market. Credit spreads, they’ve narrowed. The high yield corporate bonds continue to outperform, since, you know, the correction, which signals, you know, healthy risk appetite among investors. Mind you, valuations are now obviously higher than they were at the beginning of the year and even rich for a long term perspective, but it it’s not immediate concern for goals especially given the low level of global yields. Last week corporate profits are strong despite the gloomy sentiment. In fact, as of today, about eighty percent of companies that have reported have beaten earnings estimates and a closer look shows that the keys consumer and tech sectors have performed the best.
Chuck:Are those the sectors and the areas that you think that’s what’s going to be holed up for the rest of the year?
Ken:You know, when a long term bullish trend is intact and economic growth remains what I’d call stable we’re definitely in the latter stages of the economic cycle. You know, we’ve been witnessing a shift from growth toward value since the end of the correction and that trend is likely to continue. So, repositioning away from highly leveraged companies into companies with strong balance sheet and lower debt levels would be beneficial for investors should the global growth pick up and yields turn higher. Additionally, tightening financial conditions, rising yield would also benefit large, domestic focused banks as domestic balance sheets are healthier that what we see in Asia and especially, Europe, where financial leverage is still a looming problem there.
Chuck:What could reign the game here? What is the thing that worries you about? You know, this could be the the big impact that makes you say, “Oh, by the way Chuck, now that you have the on again, I’m gonna change my mind.”
Ken:The first thing comes to mind is that a no Brexit deal. You know, although it’s unlikely, it would definitely cause turmoil in markets but even if it did it would likely just proved to be another buying opportunity like we saw before. The European slowdown on the other hand, especially, manufacturing is worrisome. But, until we see signs of broader weakness beginning to affect our domestic economy I wouldn’t change my constructive view. China remains the biggest global risk. You see, although the countries maintaining growth through credit expansion. These periods are forced expansion which often lead to severe, what I call, “economic hang overs” which, could easily affect the entire global economy as well as, you know, it’s always worrisome that central banks are out of ammo, meaning that interest rates are the lowest in five thousand years. Yes, I just said that Chuck, “Five thousand years.” That’s a fact.
Chuck:Well, you know, I’m not sure. We’d have to do some relative math there.
Ken:Google it, Google it. You will see, you’ll be shocked. I’ll be in shock. But, should the economy deteriorate despite the global down shift. Yes, we could be in for a rough patch. Especially, if Chinese, you know, the hard landing materializes. The last thing, small caps have been lagging. The broader market, recent weeks in line with the shift toward value that I just mentioned but other risk indicators are not showing any signs of stress yet.
Chuck:Well Ken, it’s great stuff as always. I wish I had more time but we don’t. So, the good news is, we’ll just have you back and see how this is progressing in a couple of months and and see where you’re at that point. So, thanks so much for joining us. I should point out to my audience you and your wife are expecting another child. So, Mazel Tov and may that all go well and I look forward to hearing all about it the next time you’re on the show.
Ken:Thanks Chuck. Remember, the bull market lives so enjoy it while you can.
Chuck:That’s Ken Berman everybody, if you want to see how to enjoy the bull market by using his advice we’re gonna go to Gorilla Trades. Gorilla Trades dot com on Twitter at Gorilla Trades. Ken Berman is a strategist for Gorilla trades.
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