Market at a Crossroads

S&P 500 3 YearThe S&P 500 is hitting up against substantial resistance right now. It has been here before. And before. And before. 

Right now the technical indicators tell us nothing except in hindsight. Eventually one will be right and whomever was by luck of the draw pointing to that indicator at this moment, they will get to claim to be prescient.

Here you can see that the S&P 500 Index 50 day moving average on a weekly basis has crossed below the 100 day moving average on a weekly basis. This generally indicates the start of a bearish trend. However, we have gotten a few up days since that cross over began. We must remember the old adage; “the market can stay irrational longer than you can stay solvent” when considering what to do in response.

Ultimately, we are all still fighting the Fed and other central banks when it comes to fundamental analysis. It is clear at many levels that the fundamentals do not support a continued rise in stock prices. One merely must look at falling earnings and rising price to earnings ratios.

So, while central banks try desperately to create growth that neither demographics, nor financial conditions support, we are left wondering when the next shoe will drop? Will that shoe be a light summer correction that refreshes, or will it be something more ominous or something in between. While I would bet on the first or last possibility, one thing that should be clear by now to the world: if central banks continue to experiment monetarily, then eventually, there will be an accident.  

To my mind, the greatest bubbles in the world are not in the America. That doesn’t mean we don’t have problems. Eventually the wave of baby boomers hitting Medicare will be too much to handle and we will have to take drastic action. That will happen sometime in the next 15 years or so. But why would politicians deal with the problem now when they can retire and leave it to somebody else. Let the good times roll now. 

Heck, in America, we have about a quarter of the population backing a socialist who can’t even count the delegates to know he’s lost. Go figure, a socialist that can’t do math. That explains a lot. It reminds me of this quote: “if socialists understood economics, they wouldn’t be socialists.” (Friedrich Hayek) 

What Mario Draghi is doing in Europe is outright asinine in my opinion. Then again, he gets to be central bank chief and I merely own a few small businesses that the central bank could really screw up. The same can be said for China and Japan. At least the Japanese seem to have their heart in the right place. I’ll happily send them a few bucks when it’s time for their bailout.

Below is the 10 year chart. Take a look at the relationships of the moving averaged back around the 2007-09 financial crisis. It would appear we are closing in on another correction of significance, however, who knows, the central banks are playing with the test tubes and nothing has blown up. Yet. 

So, for now, I am looking at markets and I see rising risk in the face of prices that won’t fall. I have a small hedge on and this gold bear is back in gold for the first time in many years. A lot of people are aching to put their cash to work who were smart enough to raise some cash the past year. To them I say, keep sitting on that cash. Wait for straighter pitches for the most part, we’re dealing with a lot of curve balls right now.

S&P 500 Technically SpeakingS&P 500 Technically Speaking




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