Thirty-five trading days into the new year, the S&P stands just about where it started. But to say that nothing has happened in the market so far this year would certainly be misleading. In case you haven’t been paying close attention, it is important to remember that the S&P experienced its first pullback of more than 5 percent in nearly a year and then recovered the entire drop in a span of a couple weeks.
So, with the S&P within a whisker of its all-time high, the natural question at this stage of the game would seem to be: What the heck is going on here?
Set Up For A Pullback
To be sure, investors were guilty of coming into 2014 with a severe case of complacency. The bull stampede was obvious to anyone looking at a chart and just about everybody in the game could reel off the bullish factors evident in the market. As such, every sentiment reading in our arsenal of indicators/models was screaming for attention and one of our long-term sentiment indicators had flashed a sell signal back in November.
And yet, despite the fact that stocks were overbought, over-believed, and becoming a bit overvalued, stocks continued to march higher at the end of the year as the year-end rally took place right on cue. So, with the S&P finishing the year at a fresh all-time high, most analysts were looking for the bulls to continue to romp in 2014.
To be fair however, a fair amount of Wall Street gurus did go on record as saying that a meaningful correction was likely to occur at some point during the year but that 2014 would ultimately wind up producing decent gains for stock market investors.
But as 2014 began, the bottom line was stocks were set up for a pullback. All that was needed was a catalyst.
David Moenning is the founder and chief investment strategist for StateoftheMarkets.com, a website dedicated to investor education and portfolio analysis. Mr. Moenning is also President of Heritage Capital Management, a privately owned, investment management firm. Founded in 1989, Heritage is focuses on risk management and an “own the best and ignore the rest” equity selection strategy.
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Positions in stocks mentioned: none
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.