Market Risk Elevated Heading Into Distribution Season

Deviations Are Extreme

Lastly, the market’s monthly deviations from the three-year moving average are pushing well into 3-standard deviation territory and trading more the 30% above its mean. Such deviations, as shown, have historically not worked out well for buyers.

The critical ingredient of a bullish advance is “confidence.”

Nothing Can Stop It?

The current consensus is with a vaccine coming and more stimulus, a surge in economic recovery will occur.

“When all experts agree, something else tends to happen.” – Bob Farrell

Previously, I discussed why it doesn’t take much of a catalyst to start a bout of “panic selling.” We quoted Doug Kass on a list of potential risks which few seem to be considering:

  • The virus mutates, rendering “vaccines” ineffective. 
  • There are unexpected manufacturing, distribution, and storage problems with delivering a Covid-19 virus.
  • With a delay and without a timely vaccine, the spread of Covid-19 intensifies.
  • As Covid spreads over the next month, there is an increase of state lockdowns, business, school closings, “stay at home orders,” and curfews enacted around the country.
  • The debated election results linger into 2021 as lawsuits multiply.
  • Global economic growth fails to reaccelerate in the second quarter of 2021.
  • Housing falls under the weight of higher home prices – affordability suffers. Housing’s economic multiplier effect moves into reverse.
  • Consumer and business confidence takes a downturn.
  • Bond spreads widen.
  • A divided and partisan House fails to deliver a sizeable and credible stimulus bill.
  • Investors realize that monetary policy can no longer foster or catalyze economic growth.
  • Deflationary conditions accelerate based on unexpected economic weakness.
  • A sizeable corporate fraud gets discovered – further deflating investor confidence.

In a market where investors are throwing money into “SPAC’s,” or shell companies that will try and find something to invest in, the potential for a massive corporate fraud to develop is not that far “out of the box.” 

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