Cynics won't love this marketeven on Valentine's Day, because of what they experienced, as well as their propensity to fight it (or Trumpism, which was a negative risk many took, based on either allegiance to the old ways of things economic, or flat-out failing to see how investors wanted these new initiatives to enhance growth prospects, even if they're a year or more out).
At the same time, this upward saga without a 1% correction for over 40 days and 40 nights has taken on Biblical proportions causing even Bulls to wear life vests now. (That's how the VIX managed to rise Thursday even while the DJ and S&P did concurrently; suggesting managers are increasingly freaked not to witness even a modest normal pullback.)
While not issuing flood alerts similar to the potential downstream disaster at Oroville's Dam in California; we do think there could be streams of sellers on any notable misstep; but not a torrent of selling; at least pending some technical indication supporting that.
At the moment you continue to have 'worriers' dominant; but no price breaks of significance, where it counts (even Oil can pull back periodically without seriously curbing the upside). Several weeks ago as things were narrowly sideways at a lower plateau of this market, I opined that we had to 'respect' the upside simply because the S&P breakouts were not followed by typical (even if brief) shakeouts. This suggested a stamina that often grinds higher.
We also felt (still do) that many money managers are scrambling to find any sort of unexploited value, so they dig deeper into Russell 2000 or some less followed stocks that have not dragged-in many analysts or heaving longs. It is notable because that also signifies what should become a 'desperation' or late (short-term) stage of buying. That's essentially a traditional blow-off, or an upside 'capitulation', bringing-in not just 'retail' buyers, but institutions so desperate to find ways to participate.
In sum: the reality that so many analysts 'fight' this market advance is not a sign that it's a good place to be buying. But it is a sign to recognize that the market advances 'despite' lots of 'potential' reasons why the trend shouldn't be carrying so high.
Sure, after this market kisses a spike high, we'll get some sort of decline; but not necessarily rivaling Baby Jane's fall (just a bit of humor). And for awhile things will seem as confused as Bette Davis in that fabled movie; but the advance is an Oscar winner for 'best performance' by an unloved overage S&P trend already; and the trend will resume after of course an inevitable retreat.
We've felt this would extend; and I emphasized global aspects of this market; where not just Europe, but Japan and some emerging stocks are also at highs. This tells you it's 'global reflation'; not just a bearish short covering pre-trade-war environment such as globalist opponents contended.
Conclusion: indicators moved to neutral because of the lengthy sideways, or plateauing behavior, which we thought deserved respect for more upside since there was no 'pop-and-flop', or false breakout. We leaned optimistic in these weeks, while also 'on-guard' for a certainly justified pause-to-refresh; not cascading waterfall decline.
It's more extended now. While there's no overall change in the evolution of this pattern, we are notably skeptical of the lack of pauses; and increasingly will consider that any serious economic missteps could reprice this market.
We are also concerned about the 'unanimity' of thinking among algorithmic traders/trading, which is increasingly dominated by machines, based on lots of 'software code' that is probably remarkably similar between firms.
For now, a reduced regulatory combined with better growth environment is welcomed by Wall Street. Our memories are long enough to recognize this is (ultimately) both positive but also risky 'if' lending and other practices that got the industry into trouble over a decade ago, resurface dangerously. Late this week I'll review more pitfalls that may lie ahead. Foremost among these concerns might be 'algorithmic trading returns': the rise of the machines.
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