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November 28, 2018
Are we really in a bear market?  
First, let's answer the question

No, according to the most widely accepted definition, which is when the  S&P 500 falls by 20% from its high. At the moment, the index is teetering on either side of a correction, which is defined as a fall by 10% from its high. Even if you go by the XLK, the most widely followed technology sector ETF, we aren't down enough to declare that sector to be in a bear market, in spite of how much the FAANG stocks are down from their highs. If you're diversified, odds are high that if you're just following your portfolio value and nothing else, you wouldn't even know there's so much investor mindshare dedicated to figuring out if we are indeed in a bear market.

Not to say we should ignore a growing number of warning signs. On the economic front, statistics are aren't looking as good as they recently were. Housing figures, consumer confidence, and automobile sales have all peaked. I was one of the first market pros to address peak earnings, which is clearly in the rear view mirror. On the financial markets front, the ten year treasury is paying more than the average dividend yield of the S&P 500, buybacks have been having a muted effect on stock prices, and more often than not, the number of 52 week lows is higher than the 52 week highs on the NYSE, a negative advance-decline line, according to market technicians. From a macroeconomic view, the Dollar is strong, which is a weight on U.S. exporters' earnings, the Fed is in power mode in raising short term interest rates, and corporate debt in the U.S. is 40% higher now than it was before the Great Recession a decade ago. From a global markets perspective, Blackrock's iShares division manages 65 individual country ETF's - 62 are down YTD 2018. Commodities like oil, copper, and corn are all down on the year. Bonds and gold, two go-to safe havens are down in 2018. Bitcoin has been crushed this year. Pot stocks are down substantially from their Canadian pot pre-legalization days.

After reading that last paragraph, I bet you can see why talk of a bear market is so loud these days.

So, where do we go from here?

From a chart perspective, let's take a look at the S&P 500 year-to-date chart below. On the left half, you can see that between the double top green line and double bottom red line, between February and March, stocks were in nowhere land, looking for a direction to break toward. This was clearly settled with an upward move to new highs, which peaked September. More recently, on the right side of the chart, you see the green line connecting the two peaks and the two bottoms connected by the red line. The right side and the left side of this chart are nearly identical. Stocks are once again in nowhere land. The difference now is that the right side is still unresolved; stocks are looking for a direction to break toward.

Until we see stocks either rise above the right-side green line or fall below the right-side red line, we won't know whether or not the bull market continues or if the current correction develops into the true definition of a bear market.

We're down to the buzzer
The two determinants of stock market direction for the rest of this year and the start of 2019 are resolution of the China trade tariff situation and Federal Reserve Chairman Jerome Powell's comments following the next FOMC (Federal Open Market Committee) meeting on December 18 th/19 th .   Like a great basketball game, it's all coming down to the final two minutes. It'll be exciting to see how it all plays out. But either way, my clients are ready. Are you?  

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All the views expressed in this report/commentary accurately reflect our personal views about any and all of the subject securities or issuers and no part of our compensation was, is, or will be, directly or indirectly related to the specific recommendations or views we have expressed in this report. This material is not intended as an offer or solicitation for the purchase of sale of any security or other financial instrument. Securities, financial instruments, or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values, or income from securities or investments mentioned in this report may fall against your interests, and you may get back less than the amount you invested. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. You should consult with your tax adviser regarding your specific situation. Diversification is a method of managing risk and doesn't protect against loss in a down market. 

Mitchell O. Goldberg, AIF®, AAMS

President | Investment Professional

OSJ Manager 


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