Bearish Divergence

One reason I think that the next correction – if it’s not a bull killer – will be a big one is because of the bullish pressure building from the dumb money, while at the same time forensic indicators like junk bond to investment grade and T bond spreads show smartermoney creeping out of the markets.

 

Nominal HYG is at a trend line, fine.  It’ll probably hold for a while.  But HYG vs. LQD and TLT has been declining all year.  This is a market sponsored by the dumbest of money.

Here is but one more view among many out there that I could post…

 

The graph is from the thoroughly lampooned and reviled EWI and this article:

Retail Money Market Funds Signal Reversal for the Stock Market

Now of course, trend followers everywhere are and have been holding court as the Fed has their back with its money creation.  And boy, have investors ever been piling that money into the market.  While guest poster Michael Ashton begs to differ, I believe that policy is plenty accommodative even with an elimination of QE.

ZIRP compels people to put money into the stock market or chase the yield of junk bonds, as noted at the beginning of the post.  I don’t buy the ‘most hated bull market of all time’ Straw Man.  It’s another gimmick by bullish promoters.  This market and the act of speculation itself are thoroughly loved by retail investors.

But at some point the bulls may simply going to run out of ammo, ZIRP or no ZIRP.