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Weekly Economic and Stock Market Commentary – January 25, 2021



As for the stock market specifically: This short week of January was a good week for bulls, despite a modest decline Friday.  Each major market index was up multiple percentage points, which nearly all of us welcome.

The general consensus is that “our friends in Washington” will ramp up the fiscal and monetary stimulus (to a new group of favored groups and industries) in a manner that will make the last administration look like cheapskates.

Long time readers know I don’t make predictions here about the stock market, and some you surmised that I don’t make predictions regarding what future legislation will come out of Congress, and get signed into law.

This week I had a few calls regarding current investments and the market risk due to the new administration.

I told each person who asked (and I figured some readers may have the same question, but have not asked) what I am about to write.

My research indicators all say we should be making efforts to make more money.  That is what I intend to do until the research I do says otherwise.

However, I do NOT OWN YOUR MONEY.  I only invest it.

If for whatever reason, you are worried about market conditions, you own too much stock, and you need to have me “sell to the point where you can sleep at night”, that’s ok.

It doesn’t matter what I think because I concentrate on the holdings.  If I did otherwise I would have been out of this business decades ago.

What follows for the next few paragraphs is stock text that I present occasionally.

The bullish percent is the number of stocks that have bullish patterns, nothing more, nothing less.  It is calculated by counting the bullish charts, and dividing that number by the number of stocks in a sector/market.  Then multiply by 100 to get the percentage.  A key item to remember is that all stocks that have traded for some time will be either bullish or bearish, not both.

The discussion comes down to a variation of this:  “Why are the bullish percents increasing, but the numbers I see on TV are a little up, flat, or a little down?”  Since this is election season, think of the difference in terms of the composition of Congress.
There are two basic answers.  One potential answer comes from the nature of the bullish percent.  It is based on the notion that a stock as large as General Electric counts as much as a stock of the size of the smallest stock on the NYSE.  Think of the bullish percent like the US Senate – California counts as much as South Dakota.
The other potential answer stems from the composition of the index, such as the Dow Jones Industrial Average, S & P 500, or Nasdaq.  The S & P 500 and the Nasdaq are known as capitalization weighted.  That means the largest companies in the respective index holds greater influence than the smaller companies.  The metaphor here is to the US House of Representatives.  There, California has approximately 52 representatives, while South Dakota has 1.

This week saw the opposite of last week.  This past week two of three bullish percent indicators fell despite the market averages going up..  WEALTH ACCUMULATION strategies are in effect for investors at this time.


Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of January 22, 2021 (Courtesy Dorsey, Wright, and Associates).

On a general note: The Federal Reserve announced that December Industrial Production rose 1.6%.  That was more than triple the 0.5% level anticipated by economists.  Utility output led the way with a gain of 6.2% over November’s number.  Mining output rose 1.6% during December.  Overall output was 3.6% less than December 2019.  Capacity utilization was 74.5%, up from November’s 73.4%.

The National Association of Realtors informed us that existing home sales in 2020 were the strongest since 2006.  People purchased 5.64 million homes in 2020, which was a gain of 5.6% over 2019.  December existing home sales rose 0.7% over November to a seasonally adjusted annualized rate of 6.76 million homes.  That represented an astounding gain of more than 22% when compared to December 2019.  December’s median sales price was $309,800, which is a gain of 12.9%.