Stock markets continued to move higher last week though volumes were light due to the Thanksgiving holiday in the US. My technical trend indicator remains in bullish mode, a solid 47 points above the long-term moving average, thus continuing to confirm the bullish trend, though the rally is very stretched in the short-term. The US Federal Reserve is providing additional fuel for the rally by printing money at a mind-boggling pace. The adjusted monetary base in the US is now approaching $4 trillion, +360% in five short years. With valuations (S&P 500 trades at 19.7x 2013 earnings) and confidence running high, risks of a downside break in markets loom large.
Economic: Consumer confidence data was mixed with the Consumer Confidence Index posting a decline for November but the University of Michigan Consumer Sentiment Index rising.
Technical: From a technical standpoint, the trend is still positive, though the Advance/Decline Line has stalled, unable to keep pace with the recent stock market rally. There remains little urge to sell as momentum investors continue to chase performance through year-end.
Strategy: The stock market remains overvalued, overbought in the near-term and investor sentiment has reached an optimistic extreme. We therefore maintain our cautious stance with an allocation in the model portfolio of 20% stocks, 50% bonds, 20% gold and 10% cash.
Next update: Friday 6th December 2013.