A steady march upward since the opening bell pushes the SP500 to new highs (1974.63), yet volume falls. So who is buying or is this another Wall Street manipulation?
By noon I remain a very nervous bull.
These two articles by Cam Hui are timely, accurate, disturbing and a must read.
This Will End In Tears, But When? (Part 1)
I have outlined in the past my long-term concerns over expected equity returns. Valuations are stretched, but there are no immediate signs of a bearish trigger.
Too much complacency has shown up in low volatility in all asset classes. Such an environment encourages investors to take on too much risk.
There’s also little margin of safety built into valuations. With bond yields edging down this year and inflation gaining momentum, real interest rates (adjusted for inflation) are again approaching zero.
The metaphor about the cracked tree that has a crack in it, you worry it’s vulnerable to a storm in the backyard perfectly captures the current environment.
‘Ending In Tears’ Doesn’t Mean The Market Goes Down Right Away (Part 2)
The markets are getting frothy. The combination of too much complacency, which leads to excessive risk appetite, and diminishing margins of safety will magnify the downside effect of any negative catalysts. However, the existence of such a high risk environment doesn’t mean that stock prices go down right away.
I examine the likely bearish triggers for risky assets such as stocks. In summary, there are four broad categories of risks to the U.S. equity market:
Geopolitics
U.S. politics
Inflation scare
Earnings growth scare
The short term indicators are leaning towards the hold side at the midday. The all important signs of reversal, up or down, have not been observed so we are mostly, at best, neutral and conservatively holding. The important DMA’s, volume and a host of other studies have not turned and that is not enough for me to start shorting. The SP500 MACD has turned flat, but remains above zero at 14.97. I would advise caution in taking any position during this volatile period.
