On the negative side of the market outlook, price earning’s multiples are through the roof and valuation levels are near historic highs, asserts Dan Sullivan, technical expert and editor of The Chartist.
Since the March 25th lows, the market as measured by the S&P 500 has soared over 50%. This dramatic rise in share prices has come in the face of an economy that contracted by a third between April and June. The recession we are now in has not been witnessed since the depression years of the early 1930s.
It is no wonder why many stock market participants feel that we are in a bubble and that the bull market is living on borrowed time. The American Association of Individual Investors in their latest weekly poll shows bears outnumbering bulls 42% to 30%.
It is interesting to note that the bullish contingent has not been above 35% since the middle of April and was as low as 20% only two weeks ago. From a contrary opinion standpoint, this is a very healthy sign that the bull market has further to run.
For the year-to-date, the FAANGs — Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Google (GOOGL) — have soared 48% while the S&P 500 has added only 4.8%.
Without the FAANGs the S&P 500 would be approximately 8% below its February highs. Many analysts feel that this distortion in the S&P 500 is going to end badly when the FAANGs fall from favor.
However, for the foreseeable future the chart patterns of the S&P 500, as well as a host of other key averages, are bullish.
The most bullish thing the market can do is go up and set record highs in the process. We feel that it will only be a matter of time before the Dow, Russell 2000 and S&P Midcaps follow suit. Bottom line, the bull market has further to run.
Two stocks that we are now recommending for traders are the the medical sector. Veeva Systems Inc. (VEEV) is a provider of cloud-based software solutions for the global life sciences industry.
The company offers solutions for a range of requirements within life sciences companies, including multichannel customer relationship management, regulated content and information management, master data management and customer data.
DexCom Inc. (DXCM) is a medical device company focused on the design, development and commercialization of continuous glucose monitoring (CGM) systems for ambulatory use by people with diabetes and for use by healthcare providers.
The company is commercializing its fifth generation CGM system. The DexCom G4 PLATINUM with Share remote monitoring system uses a wireless connection between a patient’s receiver and an application on the patient’s iPhone, iPod touch, or iPad to transmit glucose information to applications on the mobile devices of designated recipients (followers).
