Thoughts from last week's Technician segment with Piper Jaffray's Craig Johnson, which you can listen to in full at Financial Sense Newshour here or on iTunes here.
We're now six years into this bull market and many are wondering whether the long awaited peak is finally here.
“You see the market really trying to digest a lot of news,” Piper Jaffray's Johnson said. “You’ve got an economy in Q1 and Q2 that has … a little bit of start-and-stop activity to it. We’ve already seen investors price in … an economic recovery. And we’ve seen earnings estimates a little bit flatter than I think investors expect.”
Together with dollar strength and concerns about Greece, China, and some other geopolitical issues, we’re experiencing a market that’s trying to decide where it wants to go, Johnson stated.
“Is this market due for a pullback or a correction?” he asked. “Is the market looking for further multiple expansion? We’re really struggling with that at this point in time.”
At the beginning of the year, Johnson called for 2300 on the S&P, which makes him an outlier among analysts, Jim Puplava noted in the interview. But he also gave Johnson credit for making some of the most accurate predictions compared to other forecasters: for example, in 2012 he nailed his call, only being two points off at the start of the year.
“We’re actually looking for 2350 (on the S&P) by year-end,” Johnson noted. “We still think that is a very achievable goal.”
This is likely, he argues, for a variety of reasons. Considering sentiment, Johnson said that too many investors are still holding out for a pullback.
“Everybody’s climbing that proverbial wall of worry,” Johnson said. “This tells me squarely, from a psychology standpoint, that the pain trade is still up.”
“Second, we’re throwing a lot of bad news, a lot of concern at this market,” he added. “But yet we’re not seeing real big selloffs.”
Another consideration is that few big investors are changing their positions, Johnson noted.
“This is … profit taking or raising of a little bit of cash from some of the macro houses looking to just de-risk a little bit,” he said. “It tells me there’s not huge position changes happening. … To me, that’s still a positive sign.”
From a structural perspective, more dollars are going into share buybacks than we actually have in earnings, he noted. Additionally, from an earnings perspective, Johnson said he wonders when the market will begin to think about 2016 earnings. Looking at sectors and rotation, Johnson feels the evidence doesn’t point to a correction.
“If this was really (going) to be a big correction … the financial sector would be rolling over,” he said. “In fact, just the opposite (is happening). Regional banks, money-center banks, insurance companies … are all starting to break out of big, long consolidations, and they’re starting to make nice higher-highs and higher-lows.”
“I think we have another 10 to 11 percent upside in this market in the year-end,” Johnson said. “I’m feeling pretty good about my (call for) 2350.”
Dollar strength may add some resistance, he added. However, with a rising dollar comes economic improvement.
“The dollar is strengthening,” he said. “That’s a bullish sign. And ultimately equities go with it. And I think that’s what we’ll probably see play out again.”
Breadth is indicating market churn, Johnson said.
“The great technician Ralph Acampora (will) always tell you, a churning market and a change in leadership is really a sign of strength,” he said.
“We do think the Fed will raise rates this year,” Johnson added. “I think it’s safer to say that it will get done in December. My thoughts are, the Fed goes to 25, sits and watches to see what the reaction is.”
“The Fed is going to be late,” he noted. “Let’s be very, very clear about that. The Fed has absolutely no incentive to go too early.”
Johnson also discussed the need for wage inflation and the potential for more downside in the commodities markets. He called for a relief rally in gold around 1050, and anticipates 20 percent more downside risk in the oil market. He advises investors to sell all relief rallies in gold and oil.
“With the Fed going gradually, this bull market … still has room to work,” Johnson said.
Listen to this full interview with Piper Jaffray's Craig Johnson by clicking here. For a complete archive of our broadcasts and podcast interviews on finance, economics, and the market, visit our Newshour page here or iTunes page here. Subscribe to our weekly premium podcast by clicking here.
