When the SPX breaks out above its current resistance level, it will be the
next leg up in this bull market. We are currently in a consolidation period.
The SPX seems to be resting for now! The "Bollinger Bands Squeeze" is now taking
hold and will result in a powerful move in either direction once broken. I
do have a new BULLISH trigger for members to enter into during this amazing
"melt up" that will only be shared with my 'elite members'. I can assure
you that you will want to be invested in this next BULLISH leg of the SPX!
The Next Move UP!
'Bollinger Bands' are one of my most preferred tools of technical indicators:
The "Squeeze",(http://www.investopedia.com/articles/technica...-below-textnote)
occurs during low levels of volatility as the 'Bollinger Bands' narrow. These
periods of low volatility are followed by periods of high volatility. Therefore,
a volatility contraction of the bands can foreshadow a significant advance
or decline. This is one of my best kept secrets of technical analysis, until
now!
Financial markets are now awaiting what the new Trump Administration has in
store. These markets do not like "uncertainty". So far, President-elect Trump
has announced a direction of deregulation and lowering the tax bracket for
corporations and repatriation of all corporate money target="_blank"(http://www.investopedia.com/terms/r/repatriation.asp)
that is held overseas in foreign bank accounts.
The 'ISI Research Study' revealed that the "U.S. S&P 500 companies now
have $1.9 trillion parked outside the country". Most likely, said funds will
be applied so as to continue the stock buyback program thereby pushing the
SPX to new levels that are ridiculously overpriced. Hot money 'continues to
be supporting the rise in equity markets. I share some of these hot money sectors
and stock on my target="_blank" StockCharts.com
public list!
Trump's Victory Speech on November 9th, 2016:
"
We are going to fix our inner cities and rebuild our highways, bridges, tunnels,
airports, schools, hospitals. We're going to rebuild our infrastructure,
which will become, by the way, second to none. And we will put millions of
our people to work as we rebuild it. We will also finally take care of our
great veterans".
Chart of the SPX "melt-up':
Are there too many happy investors?
The U.S. stock markets have been on a run since the U.S. Presidential election
last November 9th, 2016.
U.S. stocks continue to see signs of "optimistic extremes". The risk of buying
on emotional decisions is still currently high.
There is no interest in shorting. The number of shares sold short, in hopes
of buying them back at a lower price, has collapsed. The SPY fund target="_blank"(https://us.spdrs.com/en/product/fund.seam?ticker=SPY),
short interest is the lowest since the summer of 2007. Individual stocks are
also showing a lack of short sales which, in turn, removes a pool of potential
buying interest. A "de-trended" version of the short interest ratio has dropped
to a level that has led to negative returns for stocks which will happen, but
likely not for many month yet. The market is likely to grinding higher before
a big correction takes place.
A new high presented itself on a day that the jobs report missed expectations.
On January 6th, 2017, the jobs report came in less than what economists' expectations
were. However, the SPX powered to a new high of 2276.06. This may seem like
good news, but during prior times that this occurred, stocks usually pulled
back over the following weeks.
Stocks have drifted higher even after optimism reached an extreme. 'Dumb Money
Confidence' exceeded 80% but the SPX has added on more gains without any kind
of pullback. This type of buying pressure, after an extreme optimism sentiment,
has previously occurred only a handful of times. It has usually led to losses
as the late buyers became "exhausted".
Investor confidence is so High they see no need to hedge their positions:
The Equity Hedging Index has declined to its' lowest level in nearly two years,
showing a lack of interest in the various ways that investors use to protect
themselves from possible market declines.
This chart is a contrary indicator. The higher the Equity Hedging Index, the
more likely it is that stocks will rally going forward. The lower the Equity
Hedging Index, the less likely that stocks will rally.
Conclusion:
Hopefully, Trump's business experience will translate well into his new position.
It is certainly my hope that he is as successful as possible. Even during the
campaign Trump spoke about how stocks were in a giant 'bubble'. This euphoria
that we have felt, since his election victory, has made that 'bubble' even
larger. Throughout U.S. history, every 'giant financial bubble' has always
ended very badly, and this time around will not be an exception. Trump may
get the blame for it when it bursts, but the truth is that the conditions for
the coming crisis have been building for a very, very long time.
I expect the stock market to stall out mid way this year in June/July at which
point things could turn south.
