Jeff Saut, Chief Investment Strategist at Raymond James, says the rally is done yet. Saut offers 4 reasons why the path of least resistance is up:
“The call for this week: December has been the best performing month of the year over the past 100 years with positive returns 73% of the time. And while last week’s 7.39% romp (basis the SPX) will likely not be duplicated quickly, the path of least resistance remains “up” according to our work (as an aside, the real winner of the week was the Russell 2000, which was up 10.08% last week, while Natural Gas rallied 11.63%). That said, while the DJIA bettered its 200-day moving average (DMA @11946.18) last week, the SPX and D-J Transportation Index did not. Consequently, a divergence currently exists that could lead to some sort of pause and/or pullback. Therefore, look for opening strength this morning followed by attempts to sell stocks back down with the final hour being a toss-up. Still, with improving economic numbers (see the second chart on page 3), the potential for positive news out of the aforementioned trifecta, a profoundly underinvested “crowd,” and the upside seasonal bias, pullbacks should be contained and the upside should continue to be favored.”
Source: Raymond James
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.