Weekly Economic Update 02-24-2017

In a rare event, this week the Dow eked out an 11-day consecutive win streak, which is a streak usually reserved for the early phases of an economic expansion and not the late stages like we are in now. Corporate earnings need to increase 30-40% this year to justify current valuations, meaning investors today will likely have to way until 2019 for those valuations to materialize provided the economy can grow. Yet people have forgotten what happens to overvalued markets: 1987, 2000 and 2008 are but faded memories…

Bob Farrell’s Market Rule #4: Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.

Client Update: Looking at historical trends bonds should lead the back with miners and metals following in that order. The recent trend has been miners, metals and bonds. The longer-term bullish trend is intact, but this recent move just felt wrong, until today.
I have been expecting a pull-back from the miners for a few weeks now along with a pull-back in metals. Miners have been moving down and are now showing signs of hitting my target buy zone, just as metals are making short term highs. Meanwhile Treasury bonds have been slowly picking up steam and showing signs they will be breaking to the upside in the near term.

What I see now is that the metals are lagging the miners as they usually do. And Treasuries, which have bottomed are going to lead the pack. Simply, things got out of order but they appear to be lining back up. Hopefully within the next week or two the miners will move down to their 21-day moving average on the weekly scale which would signal a buy in.

If you are worried we missed the big rally, we didn’t. What I expect to see is miners retrace near my target buy point and then make another attempt at breaking to new highs. The good news is that momentum on the weekly charts is bottoming, which suggests the rotation to the upside is coming. This is exactly what we want to see.