10/25/2018 A Fake Economy Can Still Lift Stocks

The action in the market is showing up with conflicting takes between the Sector Model and the Full Model.

The Sector Model has been painfully suffering in XLE after going nowhere in XLP.  It is now negative for the year, as is the Full Model.

But XLE is one of those odd sectors.  It’s indicative of a long term market top, with increasing volatility, but at the same time a market top can go on for quite a while.  Market timers would be looking for the exits just in time for a market surge.

The Full Model, however, shows a more complex story.  Here are the best industries:

CHEMICAL

COSMETIC

EDUC

ENTTECH

FURNITUR

HEAVYTRK

HOMEBILD

HOUSEPRD

INSLIFE

INSTRMNT

TRUCKING

Insurance and Education are things people need.

Cosmetics and Entertainment tech are things people want.

But for me the combinations of Furniture, Homebuild, Household Products, Trucking, and Heavy Trucking show an economy that still has legs.

Granted, the rising deficit shows that this economy is a fake economy, but it’s been fake since early 2009.  The fact that an economy is built on government sugar is meaningless when it comes to the stock market.  As long as the debt continues to rise the stocks will too.  We profit now and our children suffer later – but nevertheless we profit now.

It looks like things are being built and moved around.

So the Sector Model shows a market top and the Full Model shows that the bull still has legs.  Either way, I never move into cash.  I just move it around into better bargains as they arise.

Tim