Cranking markets full of financial cocaine so they never correct simply sets up the crash-and-burn destruction of the addict.
Human memory being what it is, almost three years of risk-on euphoria has created the illusion that risk-on is The New Normal that will continue on for years to come. Perhaps, but there are converging signals that suggest the risk-on trade is about to reverse polarity to risk-off. These include:
Junk Bonds: A Replay of the Past? (Chris Kimble)
I've marked up a daily chart of the SPX (S&P 500) to show the megaphone topping pattern has broken lower, and the key support of the 20-day moving average (1992) and the previous high (1991) has been broken.
The weekly chart of SPX shows how long the risk-on trade has run. Markets typically touch their 50-week moving averages occasionally, just as a statistical mean reversion dynamic. The SPX hasn't kissed its 50-week MA since late 2012, and hasn't visited its 200-week moving average since 2011.
Even the most avid Bulls should grasp that market corrections of 10% to 20% are statistical features of all markets. Cranking markets full of financial cocaine so they never correct simply sets up the crash-and-burn destruction of the addict.