I’ve always been a fan of the stock market charting joke that the market is going to go up, but perhaps down with a possibility of sideways but definitely not right to left.
The trick with this prognosis is to know the odds and the potential scale of the moves in each case. As time passes and situations develop these probabilities shift and occasionally present solid opportunities to invest in good shares battered or about to be supported by circumstances.
Having the odds in your favour is the only way to win the money game.
The whole mainstream global economic environment is curated by the central banks and stocks are flying high because Central banks have defended them as they have defended property values. Stocks and property are the bedrock of economic prosperity. If you are linked into that you are going to feel the cold winds.
Right or wrong that’s how it is in the world of the new orthodoxy of ‘unorthodox monetary policy’.
So the Fed would like a bit less money sloshing around to low the risk to its balance sheet and to avoid economic overheating and we are months in to the ramp of reverse QE.
It is easy to be a doomster and see control of the central banks slipping away and a massive catastrophic crash unfolding. I was very bearish up to the correction of February. I was missing a puzzle piece. Love or hate them, the FED, ECB and Bank of Japan really do know there stuff.
They might allow markets to wobble but they wont let them crash. They have the tools and the credibility to pull that off in all but the more stress situations. Long gone is the arrogant, ‘here is our policy, suck it up’ attitude of the staircase of tightening that ultimately brought the roof in in 2007-2008. Do many remember that little escapade?
So my theory is the Fed will hold the markets in a range.
That range ceiling is near.
(SP500 ready for launch)
The SP500 look on the edge of a classic bubble formation and the DOW is approaching its highs.
(The Dow repair is nearly there)
Any attempt to contemplate Nasdaq valuations is easily translated into the Nasdaq chart.
All the charts a pointing at a moon launch.
But will the masters of financial stability allow it? They certainly have the tools to stop it dead and I believe they will.
A pull back from here would be no disaster and the market could jolly along for a few years like this for a few years, going nowhere, no harm done. Conversely a bubble and crash would bring the roof in again and we would be back somewhere in pre-2010 conditions, an ugly situation on the disaster-porn watches long for. So, I think very soon we are going to smell the burning calipers as the liquidity brakes come on through reverse-QE. But it is a buy the dip, ride it out, or buy the dips and sell the rallies situation. The central banks play will be to hold the level not break the dream.
Now if this doesn’t happen and the bull keeps charging then things are going to get very messy indeed. There will be plenty of cash to be made but lots of shirts to be lost and the denouement is never going to be a happy story.
One thing is for sure the chart is not going right to left.
(I am long the market)