You don’t have to be a grumpy old man to look at the markets and feel that they are high.
However if you can fight the tape as much as you like, but the market rally furiously every time the grumpy old men (like myself) start to get the correction they are sure is to follow.
This is tell us something. A correction soon is not destiny It is no good being dogmatic. If you are wrong, sticking to your guns is the road to ruin.
Currently there are clearly two competing camps.
The crash camp, that sees the market falls 8-10% in a few days as the startb of something big. Then there is the rally team, that slams the market back up to its trend as soon as the indexes look like they are going to melt down.
Both bull and bear can’t both be right and they both can’t keep at it. It is costly to be in the wrong group and in the end one side will exhaust itself. The question is, are the bulls right or the bears?
Both parties are shifting the market in emphatic moves. If the bears win then this is what the market will look like by the end of 2016. In a nutshell, if the status quo is maintained then the Dow will be a little short of 20,000 by the year end or at least risen close on its trend to that round number destination.
Here is that scenario in more detail and closer up. Since the credit crunch the markets have been on an unstoppable rally, if the trend is our friend this is where it is going. If the market was to bubble then it would smash through the top of that channel and go who knows where, but even without a disastrous bubble forming, a continuation of the long term trend will increase the vertigo for investors used to a decade of sideways trading. The market is high, unless you can forget the past.
You should forget the past of course according to the text books but that can also leave fundamentals adrift too. It is simply hard to imagine a never ending bull, especially with a global economic environment with plenty of new unknowns to tax it.
The grumpy old men, who I feel a lot of sympathy for, see this instead: It doesn’t have to fall that far but it is an indication of what a crash would look like if the wheels come off the markets as many expect. A ‘normal’’ crash would see the market back into the 13000s. This doesn’t feel like such a big deal, but of course it would cause carnage for many.
The market can’t go up in a straight line forever, so this year rather than my normal, rally cry, I’m going to remain in my bearish stance, warning everyone to keep very aware of the downside and how fast it could unfold.
Volatility is back, but ocean’s of money is on the hunt around the globe for safety and a rising currency. This global liquidity is what can and will push US stocks up, but it is HOT money. Hot money is a force that has created in the modern era, crashes time and again around the world. It jacks up markets then flees leaving them to crater. Hot money is dangerous and that is what is currently driving the Dow as I write.
Yet the US has massive financial firepower in reserve. It has loaded its debt at the front end of the curve and can fire hose cash out into the economy if it needed to inject new liquidity into the system. There is no doubt the Fed has the tools to defend the US economy from almost any emergency.
The Fed is not out of tricks, should things not go to plan, but that’s not what we need for the future. The global economy and its markets need stability. That is one thing that I believe will be illusive in 2016.