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In our last Investment Update, I pointed out that the major US and (most) global stock market averages are in a cyclical bear market (in an intermediate-term downward trend).

However, once we got through Christmas day last month, most of the global stock markets saw a major “oversold” rally that recovered most of the losses experienced during the nasty selloff in December.

Still, even after a + 10% jump in the stock markets over the last three weeks, we are again running into price resistance that historically indicates another round of stock market selling. Plus, we are moderately “overbought” and due for a natural pullback.

However, the stock market bounce over that last five weeks has shown that investors want to get bullish again, even though the US and global stock markets are in a tired long-term bull market.

Intermediate-Term (Weekly) Stock Market Trend Still Points South

First, the S&P 500 stock index (which represents 85% of the US stock market value) remains well below its historical 12-month moving average price - and is still moving downward in a bearish direction.

When both the intermediate-term stock market trend and the past 12-month price averages are simultaneously bearish, it can indicate a prolonged decline.

However, gauging the direction of the primary stock market trend can be a tricky business. When we also consider the fact that the last December’s low and subsequent rally in January offered some extremely positive technical characteristics, being too bearish is not appropriate.

Moreover, I believe after the stock market rally of the last five weeks, the December 24th bottom will likely remain in force for some time. The recent rally was strong and did help to erase some of the doomsday investment sentiment we saw late in 2018.

Regarding investing, in the near term we will be best served to be conservative for a bit longer. Again, since the price of the S&P 500 stock Index is still below its 12-month price moving average, it is better to assume that a bear market is still in force - until basic quantitative investment sentiment is reversed.  

Of course, the above concerns are not the only investment variable we should be watching. But seeing some resolution to these variables will certainly help provide us with better informed and much lower-risk investment decision making. 

Rocky Boschert

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