My 2020 market roadmap says stay focused on the bigger market cycle through the pending pullbacks and headline noise to come. Remember, early January is notoriously volatile with trading action often whipsawing traders in the first few weeks.
For the record, I started this note with that line on Thursday afternoon only to see equity futures reverse in the evening to reinforce that very point, thanks to potential worries about a Middle East war.
What now? Keep that long-term cycle backdrop up front. The 4-year cycle work I follow suggests equity markets were early in a bull cycle through 2019 and that there should be further upside through 2020 into 2021.
The path however is never linear with another tactical, multi-month pause/pullback likely to develop by mid-late 1Q20. Weekly momentum indicators are a helpful way to track 1-2 quarter trend shifts and they are moving into overbought territory and starting to decelerate.
By mid-late 1Q20 I expect these indicators to begin turning negative. In addition, bullish sentiment, while not at an extreme, is now well off the oversold lows that developed in late 3Q as one source of repositioning fuel for the 4Q rally. A mid- to late 1Q technical peak also lines up with the likelihood investors will begin to shift their focus from 4Q earnings to the implication of election primaries, and more importantly, whether the Fed will signal any changes to their current balance sheet expansion plans.
In short, I’m expecting the equity markets to trade in a broad, sloppy trading range moving into Q2-Q3 which should set the stage for another rebound into year-end 2020.
I believe a break-out is pending for Salesforce.com (CRM). The chart above shows that CRM is following a similar technical pattern to that of the other growth stocks, such as Amazon (AMZN) and Ali Baba (BABA), which I’ve featured in this space recently. CRM is a timely long candidate at current levels given it traded in a broad trading range through 2019 and is now just beginning to break-out of its narrow 4Q trading range above its 40-week moving average. In addition, relative performance versus the S&P 500 (bottom panel) is also just starting to turn bullish as it reverses the 2019 downtrend.
Bottom line: Growth stocks are broadly reaccelerating following steep 3Q-4Q corrections. As part of this style shift, CRM is a timely long idea that is on the verge of breaking out of 12+ month trading range. Accumulate at current levels.
