Below is an excerpt from a recent interview with market strategist, Louise Yamada.
“The thing that was really intriguing about the post-Trump breakout in the market was that it moved us out of an entire 2-year consolidation. If you think about it, 2015 and 2016 was like an extended sideways consolidation with the Dow trading between 16,000 and 18,000 for 2 years. And although the Dow and the S&P didn’t decline 20% during that time, the Russell and the small and mid-caps and the New York Stock Exchange actually fell over 20%. It reminds me of 1994-1995, which has come to be known as the stealth bear market because the major indices only went down about 9% but the small and mid-caps were off considerably more than 20% and then the market turned around and went up. So, whether it was the Trump rally or whether it was simply a change of perspective, the price told us that something had changed. And that breakout toward 19,000 on the Dow was very impressive and…we received confirmation of that in our monthly momentum signals.”
Do you think the consolidation we’re seeing currently is healthy?
“I think so far it definitely is. We still have the monthly momentum buy signals, the advance-decline lines are positive and confirming the new highs in the indices, our volume momentum which is a measure of up-to-down volume has been positive—it’s pulling back—but it’s still in positive territory. New highs, new lows we could see a little bit better performance but that may yet come because we’ve begun to see a sector broadening of participation of stocks as the sectors—the Industrials, the Financials, and the Materials—come to the fore. Remember, before the election the only thing that was outperforming really was technology and now technology has a few other sectors that are contributing, which means there’s a broader number of stocks contributing to the rally and I think that’s all positive. 200-day moving averages are rising and unless some of that begins to change, we will consider this a normal consolidation.”
My .02? Buy the dips until long-term signals – such as monthly MACD – point downward. Fundamental news should eventually “rationalize” the positive message of the market.