Equities closed out at or very near to all-time highs again on Friday, as we begin the shortened trading week thanks to the MLK holiday. Stocks have now closed higher 13 of the last 15 weeks, which is nothing short of impressive. In last week's Weekly Memorandum, we stated, "Stocks appear slightly overbought in the short-term, and are showing some signs of waning upside momentum, but in no way does the uptrend appear under threat at this time." Indeed, the uptrend is as strong as can be, but we are increasingly suspicious in the short-term.
The problem is everyone is expecting a top, and though we remain bullish overall, we have to remember markets operate in cycles. It would still take quite the reversal to cause significant technical damage to this market. But the main point after a run like this is to make sure your confidence is grounded. It's easy to feel like a market wizard after the market has appreciated nearly 16% in 3 months.
In other markets, King Dollar continues to reign supreme. We would not be betting against this currency anytime soon. There is currently an insatiable demand for dollars and dollar-denominated assets worldwide. Good luck to you if you are on the other side of this trend.
When it comes to bonds and interest rates, we are still waiting for the multi-month consolidation to resolve itself. For a while there, rates appeared highly likely to move higher. The problem is, bonds have been in a secular bull market since 1981, so it can be tricky to bet against a trend that long and powerful.
Crude oil will likely be a significant determining factor in the short-term direction of interest rates. This is because crude oil tends to have a high impact on inflation expectations. Usually, if oil goes up, it increases inflation expectations, and interest rates rise. The inverse is also the case. So this is an important market to keep an eye on with respect to intermarket analysis. By the way, an excellent book to read on this topic was written by renowned technician, John Murphy.