The Market Will Hold On to Gains

The US stock market (as measured by the DJ Industrial Avg.) will most likely hold on to the gains of the last few days. Last week, I wrote in a letter to clients that the market is likely to move sharply higher. This appears to be taking place. The mood of the market is shifting to a more resilient stance, and this is likely to last for several more weeks.

With all due respect to France and the French vote, the rebound we are seeing is tied more to rhythmic changes in market resilience than to the French election. The outcome of the French vote may be a catalyst, but the conditions were in place for a catalyst to have a positive effect.

As of last Friday (April 21, 2017), the shorter-term resilience level was notably low. Last week’s level, as measured by our Micro Market Resilience Index (MRI), was lower than 93% of the weeks since 1918. Assuming simply a reversion to the mean, one could expect Micro resilience to start moving higher.  

As the Micro MRI turns positive, it will join the currently positive long-term resilience trend, which we measure with the Macro MRI. The Macro MRI measures resilience trends lasting many quarters. The current Macro trend is positive and has been since mid-2016, even as we move through multiple Micro cycles. The positive combination of Micro and Macro MRI suggests that the market will hold on and even add to recent gains over the next several weeks. Higher resilience often leads to higher prices. 

It is appropriate to remain fully invested in stocks.