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By: Brian Price
One of Wall Street’s biggest bulls has an unnerving message for investors: A near-term storm is on the horizon for stocks. » Read More
The S&P and Dow are within mere points of new record highs and the Nasdaq saw a new record close on Friday, but veteran technician Louise Yamada warns that the charts are flashing signs of caution.
On CNBC's "Futures Now" Thursday the managing director of Louise Yamada Advisors said there are three charts that show how the post-election rally has gone "a little too far, too fast."
According to Yamada, the Dow Jones Industrial Average is in a "sideways consolidation" that could signal "a pullback of about 5 or 6 percent." Her chart of the Dow shows that the index has traded in a range of about 19,800 and just below 20,000 from mid-December to early January.
Based on Yamada's predictions, this means the Dow could fall as low as 18,844, before picking back up and taking the next leg higher.
The Dow transports also tell a similar story. "We'd like to see it a little more definitive breakout," said Yamada. She noted that the index got another "little breakout" from its December high to the high late last month, but it has since backed off by about 2 percent.
"Right now it's still in consolidation along with everything else. We'll see what happens, the buy signal is still in place, but you like to see follow through," Yamada said.
On the other hand, the Nasdaq composite has continued to grind higher, but Yamada says that this lack of a trading range actually points to an upcoming stall in the index. "You have this continued upward progression, which eventually does start to consolidate," she explained. The index "could pull back to the 2016 uptrend, which would only be about 5 percent down."
In other words, the Nasdaq could fall back to 5,371.
But Yamada also believes that the pullbacks could lead to another breakout for stocks. The consolidations are "normal," explained Yamada, and therefore she remains constructive on the market and sees another rally potentially in store.
The major averages haven't closed with a one percent move since December 7.
Many traders have been quick to say the so-called Trump trade could be over, but market rallies don't usually end when everyone is saying they will, according to Bespoke Investment Group co-founder Paul Hickey.
The analyst believes February's strong historical performance during bull markets will continue despite the heated political climate that has raised doubts about the sustainability of this uptrend.
"The end of January has historically been weak over the last several years," Hickey said Tuesday on CNBC's "Futures Now," noting an overwhelming number of business news stories suggesting the Trump rally was over. "When you do see those kinds of headlines, most market peaks and rollovers are usually not so unanimous in the headlines."
The S&P 500 ended January on a four session losing streak. Yet the major indexes in January still finished higher. Hickey argues that February could add to those gains.
Since 1985, during bull markets, February has averaged a gain of nearly 3 percent, with positive returns 83 percent of the time, according to Hickey.
The analyst's research shows that February typically starts off on a positive note and then keeps rising through the middle of the month. By the end of the month, a sideways pattern usually emerges.
"Since 2010, it [consumer discretionary] has been up every February and going back to '85 it's been up nearly three-quarters of the time, average gain of over 2 percent," he said
Hickey says materials have come in positive 70 percent of the time in February over the past 30 years. In the years when there's a Republican controlled Congress and White House, it's the only sector that has outperformed 100 percent of the time.
A pause in the historic stock market rally could be just days away, according to UBS Financial Services Director of Floor Operations Art Cashin.
Cashin, a fixture on the floor of the New York Stock Exchange since 1964, believes the market has gotten ahead of itself. His call is based on the Dow's speed to 20,000, low volatility and what generally happens during a president's first year in office.
"That thousand point move from 19,000 to 20,000 was accomplished in 42 days. And, that's very fast. That's the second fastest thousand point move in the history of the Dow," observed Cashin recently on CNBC's "Futures Now."
And, it was done on very low volatility — a trend that isn't sitting well with the Wall Street veteran.
"It is a little discomforting to old timers like me to see you make brand new record highs — multiple record highs — and see the VIX hanging around ten," speaking about the "fear gauge" that serves as a barometer of market fear. "You start to worry 'is that a sign of complacency and where's it going?' said Cashin.
For all the fanfare that greeted President Donald Trump at his inauguration on Friday, the next four years of his presidency could very well be marred by a weakening economy as a result of "injurious" policies.
Most notably, the well-known Trump critic believes that the President's proposed plans could overspend the economy into trouble and drive the Federal Reserve to interfere.
"With his massive increase in infrastructure and the military, I think there's going to be a lot more spending," said Paul. "The debt is going to be much bigger [and] I think that will put more pressure" on the Federal Reserve, he said, with the central bank already planning to tighten interest rates.
"You have good times, and then you have bad times to compensate for the artificially good times," he added. "So we'll have a downturn and that will be a real challenge for the new administration."
The Dow Jones Industrial Average may have fallen nearly one percent since coming within a fraction of 20,000 two weeks ago, but one top Wall Street strategist says it isn't an indication the rally inspired by President Donald Trump has ended.
PNC Asset Management's Bill Stone is telling investors to stay the course despite the Dow's third loss in four weeks.
He predicts stocks still have the ability to hit new highs this year, adding that markets are in an 'indigestion' phase for right now.
"A lot of it has to do with how strong things were. When you look at the really strong areas – financials, energy, small caps – they went on a tear post-election," Stone recently told CNBC's "Futures Now." "Over the past month now, they are down a bit."
With that he said, "I'd say that's still the place to look for opportunities."
While OPEC's key oil producers have been adhering to December's output cut deal, which also included non-OPEC producers, strategist Helima Croft says investors shouldn't expect a big breakout in crude prices this year.
The head of commodities strategy at RBC Capital Markets says the main problem for the commodity remains "bloated inventories."
"That's why we don't think we're going to break out into the $60s or $70s anytime soon," Croft said Tuesday on CNBC's "Futures Now." "We're going to grind higher, [but] it's really the inventory that needs to be worked off to move much higher in terms of prices in the near term."
A note released by RBC Capital Markets last week noted that oil prices could hit $60, but that this 15 percent increase from current levels will likely not happen until the end of the year. The long-term price target reflects Croft's belief that because of oil's inventory excess, the commodity will be moving "pretty sideways" unless a major news story occurs.
"That's why I think this OPEC compliance meeting this weekend is important," said Croft. "If there is some negative headline coming out of that, that's a catalyst to have a sell-off."
OPEC members surprised many by agreeing to cut production of crude in December. But concerns that the cartel's second-biggest oil producer, Iraq, will adhere to the deal have left other countries nervous as to the agreement's future, according to Croft.
Even if the accord is adhered to, U.S. production could cap oil's gains.
"As a result of the increase in prices, we are going to see a substantial amount of oil pouring into the market from the United States," the International Energy Agency's executive director, Fatih Birol, told CNBC.
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