Of Two Minds
MAY 14, 2018
Fundamental and independent analysis is not necessarily hard, but it can be immensely frustrating.
When one indicator after the next tells you that a market is wildly overvalued, that current debt levels are perilously dangerous, that corporate earnings are weak and heavily skewed by ZIRP and tax-cut funded buybacks, that inflation is here and stagflation is imminent…and the market just keeps going up.
This is perhaps the defining characteristic of the late-late-late stage bull market. When market participants who truly know better, who can see reality for what it is, just stop caring and buy, buy, buy because it seems everything will go up forever no matter what. When they give in to their FOMO and discard their pragmatism, the bubble’s inflation is near its peak.
A funny thing happened on the way to market complacency/euphoria this year: every "this time is different" manic rally in the S&P 500 (SPX) formed a bearish rising wedge which promptly reversed once the pattern peaked.
Fortunately for Bulls, none of this matters. Fundamentals trump technicals (heh), and since profits are soaring while wages stagnate (funny how that works, isn't it?), higher oil prices mean something or other that's positive (it can't be higher gasoline prices are good, can it? Must be something else), Facebook has recovered from its temporary swoon and the Fed is easing or tightening or doing whatever it's doing, so it's a clean sweep: the fundamentals are all rip-roaring good.
Oh wait a minute--technicals do matter--when they support the Bullish case. The descending trendline from the January highs was just broken to the upside, a clear technical signal that new all-time highs are essentially guaranteed--not later this year, but this month--maybe this week, so buy buy buy, you snooze you lose, don't fight the Fed, etc. (insert your Bullish aphorism of choice).
Even more compelling (if that's even possible), the quatloo-bat guano ratio just flashed a huge buy signal, something that only happens on 1.3% of trading days since 1968, so let me repeat: BUY BUY BUY (repeat your Bullish aphorism of choice).
ORIGINAL SOURCE: A Funny Thing Happened on the Way to Market Complacency/Euphoria by Charles Hugh Smith at Of Two Minds on 5/13/18