Evidence On Both Sides

If we were witnessing a real trial-by-jury (which, at the end of the day, is actually what the market is), I think it'd be safe to say that bears and bulls both have pretty solid evidence to put forth in their favor. Yes, there have been sub-industries that have done well and that we have covered here on The Chart Report, whether it's Insurance, Gold, Aerospace, Semiconductors (and here), etc. And Sectors that have been awful, such as Energy ($XLE) or Basic Materials ($XLB)  The lists go on in both directions. Heck, even Bonds bulls are having a great 2019. But what we are really talking about here are broad market indices. As we know, they've really gone nowhere in quite some time.

Frank Cappelleri sums it up quite well with his views on two widely-used breadth indicators.

So, what's the deal? Should we be bearish with stocks like Taiwan Semiconductor ($TSM) and Lennar ($LEN) rallying to new highs? Semiconductors ($SMH) are generally considered to be a "leading" indicator among analysts. And Homebuilders ($XHB)? Is the market signalling that we are on the verge of a recession with these types of stocks showing such relative strength?

As of the end of September, the Monthly MACD on the S&P 500 ($SPX) was holding above the zero line, as Damon Race points out.

J.C. Parets asks, "What if Europe actually beings to participate?" Would this be a bearish sign for global equities?

Many bulls also point to the fact that, if we were to see an economic recession or bear market (the two are not necessarily intertwined), it would seemingly be the most well-anticipated market contraction of all time. The point here is, if you are a believer in the old saying "The market looks to cause the most amount of pain to the most amount of people", then it's somewhat hard to buy into the doom and gloom that is being spewed across every financial (and non-financial) media outlet.

And every time we've seen a spike in fear, the market has rallied.

On top of all this, what if we are already in a cyclical bear market that is correcting through time and not necessarily price (i.e. a massive, 2008-like tsunami of selling)? Also a possibility.

As a recap, bulls have the fact that, when all is said and done, we are still in a long-term uptrend. Monthly charts look fine. Further, are investors running for cover if areas like Semiconductors and Homebuilders are outperforming? Hard to believe so. European equities are the closest to upside participation they've been since 2014. And finally, in what market environment has there been this much sentimental "fear" in which we actually got a bear market? Hard to see it happening, but as some have pointed out, there's a first time for everything.

It's a strong case.

Bears...what ya got?* (Here are a few areas touched on previously.)

Something that many technicians have pointed to throughout 2019 is the fact that Transportation ($DJT) stocks have not confirmed new highs with the S&P 500. And this is also another subject that has been covered here on The Chart Report. While interpretations on Dow Theory are left open to personal opinion, I don't think we want to see stocks like Union Pacific ($UNP) or FedEx ($FDX) in downtrends.

Maybe we should be buying Gold - and their Mining ($GDX) counterparts - instead of stocks? After all, Gold ($GLD) is emerging from a multi-year base and very likely to outperform equities.

There's also the uptick in defensive equity positing that we have seen, as Real Estate ($XLRE) , Utilities ($XLU) , and select Consumer Staples ($XLP) names haven been the strongest. Growth is dead.

Lowered expectations of returns on equities is also a common theme among the macro crowd.

We are clearly in the 9th inning, according to many analysts. Heck, we may be in the 10th inning. That's how far overdue we are for a massive bear market. There are a plethora of economic indicators that have been signalling a correction in equities, and this composite is a good example of their readings.

There are very large bearish divergences in many indices, including the S&P 500.

Breadth is somewhat anemic.

Bonds are beginning to outperform stocks, according to Paul Ciana. How can that be bullish for equities?

Either way you look at it, there is a lot of evidence that both sides of the aisle can use in their favor. The noise is louder than ever, and traders and investors alike continue to attempt to decipher headline after headline. Frustrations also grow, as those who have latched themselves to indexing in the major indices have seen their accounts plateau over the last 18+ months. Bulls remain positive, pointing to the strength in "risk-on" areas of the market, including Semiconductors and Homebuilders. Monthly charts are still constructive and the BTFD regime is on a John Wooden-like winning streak. So, until that ends, why would you overthink it? "Not so fast!", bears claim. "We have our evidence, too!" And they do. Transports have been lagging, which is a big deal for Dow Theorists. Gold is beginning to outperform equities. And further, Defensive positioning in the market has many clamoring that Growth is clearly dead. And then there's the macro indicators. And why fixed income fund inflows so massive? Would be want to be seeing that capital put to work in stocks if the market is to chug higher?

It's a tough market out there. And both sides feel really good about their outlook.