We may get a recession but it is going to be relatively mild and we are going to then re-accelerate and have a continuation of the secular bull market, said Mark Minervini, Founder, Minervini Private Access, in an interview with ETNOW.
Edited excerpts:
What is your own outlook on global equities because US equities are looking poised to hit an all-time high? How much strength do you see in this trend in the near term?
The US market and some of the global markets are getting a little bit ahead of themselves right now. So, we may move higher here. We may see all-time highs in some of the indexes in the US in particular. The S&P has been doing great. The NASDAQ 100 is at an all-time high. The sentiment is very bullish now. It is an opposite picture of what you had just months ago when everybody was bearish.
Now everybody is bullish and that usually leads to some type of market pullback. In the short run, as we move higher here, I would probably use that for selling into any strength from here and then look for a pullback to have a better entry.
Are you focussed on the US among the developed markets at the moment? What would be the strategy that you would advice while investing into US equities?
The way I look at it is if you are going to look at the market per se and look at indexes — be it in India or China, I would say that you want to be investing more in the individual stocks in those countries and, of course, that is probably going to have to happen through people that are in those countries as opposed to may be US investors being able to have access to the individual stocks in some of these foreign markets.
Ultimately, the world markets are probably going to open up and we are going to be able to invest in markets around the world as easily as the US some day. However, if I were in India or China, I would be looking at individual stocks and that is where the real advantage is.
In particular, there is more of an opportunity in individual stocks in a country like India than there might be even in the US. Even though the US is going to have a lot of quality growth companies, you are also going to have less efficiently priced securities in a market like India. You are going to find a lot of inefficiently priced securities in India and in China. The big question is getting access to them. But, of course, if you are in those countries, then you have access.
Which are the most interesting stock charts that you have come across in recent times? Any particular themes that are standing out at the moment?
As far as the US is concerned, there is a lot of smaller and midcap names that are good. I do not really have a list of them right now because I have sold most of my names recently in this recent strength. It has been mainly an index type rally where you are getting the S&P 500 and the Dow and the NASDAQ have done really good of the lows. But to meet the criteria that I am looking for, I still think that the best buying opportunity is yet to come.
But I have been in PayPal. That has been one of the better performers, Microsoft, Starbucks these are bigger cap names that are of a different type. Normally, you are hearing names from me that most people have not heard of because they are going to be small or midcap names. But the ones that have been working have been a bigger name that are enjoying the rally with the popular indexes right now.
What about valuations? How does one find the right entry point to the market?
As far as valuation is concerned, if we are talking about the US in particular, valuation is not really that stretched. Relative to interest rates and to looking back at the norm or the mean, the average of about 16-16.5 times earnings, we are not really that stretched. The real question is — can growth keep up and continue growing the economy now? As far as valuation is concerned, I am usually in names that have a higher valuation than the overall market. I am looking for growth and you have to pay for that. But the overall market is not drastically overvalued here. So, I would not be worried about overvaluation at this point.
Just looking at the MSCI world index versus MSCI emerging market index, where do you think leadership will come from?
I am not following the emerging market that closely with individual stocks, But when you look at the MSCI, the all country world index, and you look at the percentage of stocks or the percentage of indices that are above their 200-day moving average that recently has surged and moved up 80% or so — when you look at the percentage of those indices that have their 200-day moving averages in an uptrend, it is in the neighbourhood of 30%. That means the indexes have moved up very rapidly but the longer-term trend has not really got a chance to turn into that uptrend.
We are getting ahead of ourselves a little bit and you will see the same thing if you look at the US market versus say the NASDAQ. How many stocks are above 200-day or have 200-day moving averages in an uptrend versus the index being above the 200-day? That is something that we have provided a chart for, so that you can see the difference between the percentages of indices that are above the 200-day versus how many of those indices actually have 200 days of uptrend.
Recently the inverted yield curve was much spoken about and in the past has led to a recession in the US. Do you believe a recession will follow now that the yields have inverted?
The yield curve is not clearly inverted. I would look at the Fed funds as being really the key interest rate at this point and that is really what we would call the X. That is what I am looking at. I am looking at Fed funds and Fed funds would have to be in the range is 2.25-2.5%. We used the low end of that range. If the 10-year bond yield was to go below 2.25%, you would have an inversion if of course, Fed funds were to rise. I do not think that is going to happen, I do not think the Fed funds are moving up. So, we have to watch the 10-year. If the 10-year were to get well below 2.25%, then I would look at an inversion.
However, your question was does that lead to a recession? Yes very often it does, not always but sometimes it takes a long time for that recession to emerge. The median lead time is somewhere between six and eight months and there have been periods where we have up to 18 months before you had a recession.
I do not think we are clearly inverted yet. Not all the yield curves are inverted. The three month T-Bill versus the 10-year yes, that is inverted but I do not think we have a clear cut inversion and I also believe that we are probably looking at a recession if that were to happen anywhere between six and 18 months later.
Which are the preferred technical analysis tools that you use?
When I am looking at individual stocks. I am not looking at a whole lot of technical indicators, I am mainly looking at the charts themselves using bar charts. So, I am really focussing on earnings, sales and margins. I am looRead More – Source
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