Jonathan Krinsky, Chief Market Technician for MKM Partners, tells Financial Sense Newshour that markets are breaking out across the globe and there's little evidence we are at or near any sort of top.
For full audio, see Saturday's podcast: Jonathan Krinsky on Synchronized Upturn; Marc Chandler on Currencies, Dollar
Seasonal Expectations May be Myths
Though we typically see deeper corrections come in September and October, so far, it’s looking like smooth sailing on Wall Street.
“We have to remember that we’re in a very strong uptrend, and that’s been the case for over a year now,” Krinsky said.
Though August and September are on average the worst months for the year, from a historical perspective, these apparent trends actually tend to be anomalies, Krinsky stated.
“If we go back the last 30 years or so, October has only marked a major peak or the intra-year high one or two times,” he said. “October gets more of a bad rap, but it actually tends to be a fairly decent month, especially when we’re in strong uptrends like we are now.”
Indices in Sync
With smaller caps stocks now doing well and keeping up with large caps, which have been leading the way through the summer, everything seems to be coming together for more bullishness.
This is the hallmark of a strong bull market, Krinsky stated. One group or area of the market does well, then cools off as money finds its way into another part of the market.
From December 2016 until only a few weeks ago, the small caps didn’t really go anywhere this year, he noted. They were in a narrow trading range consolidating, and then we saw a large move out of that range a few weeks ago.
“We’re seeing the money move and different areas of the markets participate,” he said. “That’s generally constructive. … As long as there’s rotation and many parts of the market are participating, I think you have to maintain a bullish bias.”
International Participation Apparent
For the first time in a long time, we’re also seeing international markets get in on the equity bull.
Many countries are breaking out or are already in established uptrends, Krinsky stated. If we look back at 10- or 15-year charts, the rest of the world hasn’t done anything like this in that time period.
We can argue that we’re getting long in the tooth in the U.S. if we count the bull market as beginning in 2009, which is somewhat misleading in itself, Krinsky noted. But outside of the U.S., markets are having a good run this year, which has only returned them to the highs of the trading range they’ve been in for the last 10 years.
Krinsky isn’t eager to spin a story to explain this bullishness, however.
“There always seems to be a narrative,” he said. “We’ll leave the narrative for people smarter than us. … Markets go through cycles. … You can put forward whatever narrative you want to make the case why it’s happening, but I think it’s much more important, especially if you’re managing a portfolio, to pay attention to what is happening.”
Right now, that “what” is a global breakout.
Where Is Value Right Now?
Krinsky advocates keeping a bullish stance and sticking with leading and offensive sectors, such as financials and technology.
These have been working back and forth together, he noted. When interest rates have headed down, we’ve seen a shift into growth for the technology names, and when rates start to move up, some of the financials have done better.
Both sectors can ratchet higher, especially into year-end, Krinsky added. Also, good things appear to be happening with industrials and healthcare.
On the flip side, some places to be defensive include consumer staples and utilities. Consumer staples in particular have been hitting 10-year or greater relative lows to the S&P 500.
“That tends to be a bullish sign for the overall market,” he said. “We’ve seen them stabilize a little bit recently, and we’ve seen the utilities move up a little bit recently. But I think when you look at the longer-term trends, you generally want to be avoiding some of the more defensive characteristics of the market.”
While he believes energy stocks may have put in a bottom — though not necessarily a definitive bottom — they likely need a little more time to consolidate before a possible move up by year-end.
For now, he advises investors to stay the course and keep a little cash to deploy strategically if we get a pullback. Generally speaking, the goal should be to buy weakness in the uptrends, he stated.
“The one thing that does concern us is that there’s really nothing that’s concerning us,” Krinsky said. “When you can’t see anything, maybe that’s a reason to take some caution. … We’re in October and we haven’t seen a 3 percent drawdown all year. That wouldn’t obviously be out of the ordinary, but for a bigger, meaningful top, I think we’re going to need to see more evidence than we’re seeing right now.”