Sometimes it's okay to do some gentle bragging. Here goes: I’ve been spot-on with market calls. 

There were dovish comments from the Fed Wednesday. Fed chair Jerome Powell signaled a rate cut, as he sees looming economic risks. I expected that. But I'm not worried – the economic data is too good for that. CNBC released an article entitled, "When the Fed Cuts Rates Without a Recession, Stocks Go Higher 100% of the Time." The report tracks data going back to 1971. All we need to know now is that we are not in a recession. That means don't worry.

In other news, the market is at new highs. I also expected that. The S&P 500 Index closed at 3,013.77. For the first time. Ever.

For months, when people asked me about where I thought the market was headed. I said without hesitation, "It's going up." I get jabbed for always being bullish, but guess what? I'm still bullish.  

A guy made a bet with me. I didn't publicize it, but he called me when the market was dropping. That's usually when people call. He too asked where I thought it was going. Naturally, I said higher. He said he saw the market going down by 15% to 20%. That was in late May. The S&P 500 is up 9% since June 3. That's a 29% swing in my favor. The same exact conversation took place in mid-December. He's 0 for 2.

But as you know, I've been telling people the market would rally. I said that negative market action was overblown. "Stay bullish" is what the data has been saying – and it's all about data.

Table showing the performance of major indexes over the past week and since Dec. 24 lows

Congratulations if you listened, because the market is at record highs. Better yet, I think this market rally will continue, but with a caveat: August is a notoriously volatile time for stock markets. It's a classic case of "when the cat is away, the mice will play." Speaking to a $2 billion money manager on Friday, he said, "I hate August. They should just close the market for August and re-open in September."

Hey, professional investors like to vacation like everyone else (maybe more than everyone else). Much of Europe still takes August off. That ripples over to the States. If you're a New York money manager and want to retreat to the Hamptons to sip rosé, it means trimming some positions and reducing risk.

So, while I fully expect that markets will continue higher, we are quickly getting close to being overheated. The MAP ratio has been rocketing higher from 36% on May 31, which is nearly oversold, to 73% on July 12, nearly at the 80% overbought level. 

Don't get alarmed, but know this: We are in a strong market, trading at highs with nearly all buy signals. That's usually unsustainable, which means I think we are setting up for a little give-back. I don't do predictions, but gun to my head, we could see a drop of 5.5% by mid-August, which would equate to 2,850 on the S&P 500. The data will give clues if something like this is going to happen. But then I believe that the market will just continue to march right on higher.

Over the past week, the data kept reinforcing that picture. I look for institutionally tradable stocks doing weird stuff. That means stocks that big investors can move in and out of without making waves. Only it's when they do make waves that I take notice. The yellow number on the right tells you when more than 25% of those stocks make signals (waves).

Look at all of the buying. Info tech, utilities, staples, and telecom were bought last week. Notice the near absence of sell signals

Chart showing the unusual institutional (UI) signals made by sector

So, what does this all mean? Have your buy tickets ready. The U.S. market is still the best place to be. Political and economic uncertainty coupled with low rates still makes U.S. stocks an oasis for your money. And remember that, tax-relative, owning dividend stocks is better than owning government bonds. You end up with more money in your pocket. Look:

Table showing the 10-Year Treasury Yield and the S&P 500 dividend yield
Multipl, FactSet

While the overall outlook is bullish, right now I am looking for places to take some profits and reduce some risk. That doesn't mean I am blowing out of everything; it means looking to trim risk where I have a nice profit and getting some cash ready to deploy on the next inevitable dip. 

I'll be looking for great stocks being bought up by big money. That's where I feel the best odds of success are for future gains. But the trick is not to touch those core long-term holdings. Those are the game changers that can be ten-baggers in your portfolio. Those have to ebb and flow with the market over time on their march higher.

You need those to compound. Think about this: the Native Americans could buy back all of Manhattan (and then some) if they invested the $16 they sold it for in the early 1600s. Optimistically, assuming 8% per year interest re-invested from then to now, the value would be enough to buy Manhattan and also tuck away $222 trillion. Walt Whitman wrote an amazing ode to the island called Mannahatta. He also knew a thing or two about bragging. He said, "If you done it, it ain't bragging."

The Bottom Line

We (Mapsignals) continue to be bullish on U.S. equities in the long term, and we see any pullback as a buying opportunity. We expect markets to reach overbought levels in the coming weeks. 

Disclosure: The author holds no positions in any stocks mentioned at the time of publication.

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