When trying to caution against hot stocks and markets, an old Wall Street saying is rooted in a German proverb: “Trees Don’t Grow to The Sky.”

For Germans, the meaning revolved around the notion of linear thinking and acknowledging natural limits to growth and improvement (which is why this proverb could never have originated in America, where I still harbor dreams of dunking a basketball again).

For Wall Street, it’s often an excuse for not chasing a hot stock or explaining why you didn’t own the hot stock(s). These are indeed times to be prudent, but that has more to do with fundamentals than the fact that the tree (stock or index) has rallied so much that it's pressing against an invisible wall of logic.

The good news is Wall Street thinks in a herd mentality, so there is usually a chorus of cautious warnings about trees (stocks) growing in the sky.

We use technical analysis, which is a valuable tool for revealing the supply and demand points for stocks based on the history of trading. But unencumbered by history precedence, oftentimes the best guess is, “Trees Don’t Grow to The Sky.”

Move Over Redwoods & Sequoias                                                                     

Look at this Russell 2000 chart (below). That is a tree, folks. It sprouted up like a mighty oak tree.

The NASDAQ Composite also looks like a tree, looking to touch the sky.

The S&P 500

Yesterday, all eleven sectors in the S&P 500 finished the session higher.

The trendline potential hints at a move to 4,900.

                                          

Oversold Names Come Charging Higher.

Advancers were making giant strides… Decliners were only down fractionally.

One-Two Punch

Cash keeps pouring into stocks, and that’s fueling the massive spurt.

Bond yields are down a bunch but at key support points that must be taken out.

Economic Proxy Stumbles

After the close, FedEx (FDX) posted quarterly financials that missed consensus on the top and bottom lines:

• Revenue: $22.2 billion /consensus $22.39 billion
• Earnings: $3.99 /consensus 4.19
• Guidance: FY24 $17 to $18.50 /consensus $18.25

Some of the company’s issues revolve around competition, but U.S. business numbers were disappointing. This company is a proxy for the U.S. economy – I wonder if Powell has any contact there?

Today’s Session

Hesitation is creeping into the market but nothing to suggest panic. The upside bias remains in place, but the market needs a pause.

There is some anxiety over valuations. But for the moment, it’s overshadowed by the FOMC, especially among professional investors that missed the entire rally.

At the very least, they can paint their portfolio with “winners” to make it seem like they earned their keep.

This Potemkin Village – like approach is not only deceitful but only skews markets more away from fundamentals.  Consider not wanting to buy XYZ at $20 but adding the stock at $40 because everyone knows it’s a hot stock.

Give It to Us Straight

A Federal Reserve hawk made a series of comments yesterday that mostly added to confusion.  But the main takeaway from Raphel Bostic’s comments is acknowledging concern about the so-called lag effect and overshooting in the effort to slow the economy.

In other words, forget soft-landing. There could be a hard landing if they wait too long to cut rates.  And yet, Bostic only sees the need for two rate cuts next year.

Comments

The beauty of new products is, hoops are now adjustable. So yes you can still dunk. Mike Thomas on 12/20/2023 8:03:25 AM

Oh my gosh, we're never happy! Lorin Kenfield on 12/20/2023 11:30:37 AM

Nippon Steel won't be moving those jobs out of the US. The union opposes the sale to anyone but the steel company that bid about 40% less. The auto companies opposed sale to that company because it would then have a near-monoply on the kind of steel used in autos. It looks like a good deal to me. David Lee on 12/20/2023 4:38:41 PM

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