I see so many comparisons to what was happening in 2007, as if the current market environment somehow should be compared to 2007. It shouldn't. 2007 was part of a 12-13 year secular bear market. 2020 is part of a lengthy secular bull market. The bullish boundaries of a secular bear market are limited, much more so than in a secular bull market. Just the basic overbought and oversold conditions are totally different. Let's look at a big picture 40 year monthly chart of the S&P 500:
In the 2000-2013 secular bear market, monthly RSI spent just as much time in oversold territory - at or below 30 - as it did in overbought territory. So when 21st century stock market historians look at the current market environment, they exit too early believing this is as good as it gets. It's not. The 2017 secular bull market advance pierced the monthly RSI 80 level and it'll likely be the first of many over the next decade.
The monthly PPO is just above 6. During the recent secular bear market, 6 was the upper boundary. But if you look back at our last secular bull market from 1981-2000, you'll see that 6 was probably below the average of all monthly PPO readings throughout the two decades.
A monthly PPO at 6 and a monthly RSI at 71 doesn't constitute the end. Instead, it's telling me the party has just begun. If you choose to sit this one out, I believe it'll be proven that it was a big, big mistake.
Earnings growth in a historically-low interest rate environment doesn't happen often. The last time we saw it was in the 1960s. As a former practicing CPA, I can assure you that valuations remain VERY low for companies experiencing serious earnings growth. You've seen Apple (AAPL) and Tesla (TSLA) explode as earnings wildly beat estimates and accelerated. The latter has also been boosted by the mother of all short squeezes. I wrote about TSLA's breakout with 21% of its float short back on December 20th. A number of professionals are questioning the TSLA rise. I believe it's just starting.
As Chief Market Strategist of EarningsBeats.com, I'm completely focused on finding the strongest stocks capable of crushing the benchmark S&P 500 and this quarter's quest starts on Monday, February 10th as I host a "Sneak Preview" of my quarterly "Top 10 Stocks" webinar, the latter of which will be held on Wednesday, February 19th. Monday's Sneak Preview will be open to the public and can be accessed as an EarningsBeats.com community member (includes our Free EB Digest subscribers). To punch your ticket to this highly educational event, simply SIGN UP to our free newsletter. Room instructions will be sent out to our entire community on Monday morning in the EB Digest newsletter. I'll also post room instructions in my Daily Market Report for EarningsBeats.com paid subscribers. If you'd like a $7 30-day trial, I'd love to have you. For a limited time, we're even refunding the $7!!!
I hope you can join me to better understand why I believe earnings and low interest rates will produce the best stock market of this generation. See you on Monday!
Happy trading!
Tom
