Weekend Reading: Intelligent Asininity

AAA-WeekendReading-BearDance

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.

SP500-MarketUpdate-060916

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. 

SP500-LongTerm-BearMarketSignals-060716

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.


CENTRAL BANKING


THE MARKET & ECONOMY


INTERESTING READS


“The one investment certainty is that we are all frequently wrong”  Bill Gross

Questions, comments, suggestions – please email me.

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Lance Roberts

Lance Roberts is a Chief Portfolio Strategist/Economist for Clarity Financial. He is also the host of “The Lance Roberts Show” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report”. Follow Lance on Facebook, Twitter, and Linked-In

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