This past week, the bulls pushed the markets above the downtrend resistance that has held in place since the highs of last year. Of course, while prices have been lofted higher, the deterioration of the fundamental and economic underpinnings have accelerated as reflected by the rush into bonds driving yields below 1.7% on Friday.
Talk about an oxymoron.
While the bulls are reveling in the recent price advances, and the bullish biased media is touting a quick turn in the earnings picture to support elevated prices, there is a willful blindness being paid to the risk of a correction. As I quoted on Thursday:
“There have been an abnormally large number of disagreements among the indicators and studies we look at.That has reduced any kind of edge in our niche, usually a good sign to reduce exposure and wait for a better setup.
It’s hard to ignore some of the bullish factors outlined in reports over the past several months but when many of our indicators have been at an optimistic extreme and there is a wide spread between Smart and Dumb Confidence, it’s risky to add exposure. Bottom line, I’m sitting on my hands and risking a runaway breakout.”
That is sage advice.
While it is noteworthy the market managed to officially breakout above the downtrend from last year, there is still substantial resistance just overhead at all-time highs. I certainly expect traders to make a run for the highs, and potentially even break out to new highs, but that will likely be about all that happens. Of course, as discussed previously, a breakout of the market to all-time highs is not uncommon during a protracted market topping process which most likely defines our current situation.
In fact, if you look at the chart above, the current market process certainly seems far more similar to the 60-70’s than I believe most people would like to admit.
For now though, the bulls certainly have the bears dancing. The only question is how long will it take for the “intelligent asininity” of the bullish proletariat to finally wear thin.
“Told my subs the top is in. But I’m not doing anything about it.” – Heard On Twitter
Here is your reading list for the weekend.
- Fed Speak – Lost In Translation by Danielle DiMartino-Booth via Money Strong
- Great, Yellen Just Confused Markets More by Keith Bliss via Yahoo
- Fed’s Sick Puppies Will Self-Destruct by David Stockman via Contra Corner
- Jobs Report Puts Yellen In Hot Seat by John Crudele via New York Post
- Yellen Is Ignoring 3 Major Signs by Chris Matthews via Fortune
- Central Bankers Fomenting A Crisis by Sara Sjolin via MarketWatch
- Why Is Yellen Ignoring Her Own Indicator by Matt O’Brien via WonkBlog
- Does The Fed Know What It Is Doing by Alex Pollock via Cato Journal
- The Fed Is Excited About US Growth, Their Wrong by Fabius Maximus
- Five Questions For Janet Yellen by Tim Duy via Bloomberg
THE MARKET & ECONOMY
- Tax Receipts Signaling A Recession by Mike Shedlock via MishTalk
- Did Markets Overreact To Jobs Report by Mohamed El-Erian via Bloomberg
- Bond Bubble Bursting, Don’t Hold Your Breath by Paul La Monica via CNN Money
- Summer Shocks Threaten Market by Peter Spence via The Telegraph
- Jobless Report Dents Economic Narrative by Louis Woodhill via Real Clear Markets
- Why Big Job Misses Could Continue by Financial Sense
- Interest Rates Will Stay Low Forever by Jeff Reeves via MarketWatch
- 6.6 Trillion Reasons Economy Near Recession by Bob Bryan via BI
- The Declining Stocks Of Stocks by Macro Man
- Trump’s Policies May Please Investors by Joe Calhoun via Alhambra Partners
- Corporate Debt Binge Gone Wild by Rich Miller via Bloomberg
- Goldman Turns Gloomy On Market by Tyler Durden via Zero Hedge
- Global Economy In 6 Charts by Ian Talley Via WSJ
- Can Bonds Still Deliver Alpha by Andrew Miller via Alpha Architect
- Ugly Truth About Buy & Hold by Don Schreiber via Wealth Management
- Ali Spoke Frankly, Bull B.S. Rising Fast by Doug Kass via Real Clear Markets
- Unconventional Policies & Their Effects by Shane Obata via @sobata416
- Craziest Demands Of College Kids In 2016 by Robby Soave via Daily Beast
- A Warning On Populists & Productivity by Nouriel Roubini via Project Syndicate
- Why I Am On Recession Watch by Edward Harrison via Credit Writedowns
- 5 Factors Weighing On US Economy by Todd Buchholz via MarketWatch
- Socialism For The Uninformed by Thomas Sowell via IBD
- Dead Companies Walking by Scott Fearon via Tumblr
- Market Corrections Correlate With Low Rates by John Hussman via Hussman Funds
- Soros Joins Ichan & Druckenmiller In Bearish Bet by Tyler Durden via Zero Hedge
- Rising Rates Hits New Lows by Dana Lyons via Tumblr
- Loan Delinquency Rates Bely Strong Jobs Story by Michael Lebowitz via RIA
- Using Fed Model To Buy Stocks Never More Dangerous by Jesse Felder via The Felder Report
- COTD: Welfare Up 10x Since 1970, Poverty Unchanged by David Stockman via ContraCorner
“The one investment certainty is that we are all frequently wrong” – Bill Gross