Weekend Reading: Yep… Still Looks Like A Trap
By Tyler Durden
Submitted by Lance Roberts via RealInvestmentAdvice.com,
Last week, I noted technical breakout of the market above the downtrend line from last May, such a move required an increase in exposure to equity risk. To wit:
“With the breakout of the market yesterday, and given that ‘short-term buy signals’ are in place I began adding exposure back into portfolios. This is probably the most difficult ‘buy’ I can ever remember making.”
I also stated that it was probably a trap and that I will be stopped out in fairly short order. But that is the risk of managing money.
Well, since then the markets have gone, as of this writing, roughly nowhere as the market traded between roughly 2075 and 2100 all week. However, the following chart is what has me worried.
The chart of the volatility index measures the “fear of a correction” that currently exists in the market. As a contrarian indicator, the “time to sell” is when there is relatively little “fear” in the market. As the yellow highlighted bars suggest, that time is likely now.
Is the recent turn higher in the VIX signaling a market correction as it has done in the past? Possibly. If so, the question will be the depth of that correction. Will it be a mild pullback as saw in early 2015, or a more major decline as seen in August of last year? My bet is that it will likely be the latter given the weakening fundamental backdrop.
However, given the ongoing Central Bank interventions, verbal easing by the Federal Reserve and an excessiveness of “bullish hope,” there is still no telling what the markets will do next. This is why in this upcoming weekend’s newsletter (subscribe for free e-delivery) I will be discussing the possibility of “shorting against the box.”
Keith Fitz-Gerald once wisely stated:
“Always sit in an exit row.”
This weekend’s reading is focused primarily on the events from last week – The Fed and the markets. I suspect things are about to get much more interesting.
CENTRAL BANKING
- Dumbest Idea Ever Interview With Jeff Gundlach via Finanz und Wirtschaft
- Will The Fed Move The Markets Up Or Down? by Anthony Mirhaydari via Fiscal Times
- Global Tensions To Increase Before June FOMC by Marc Chandler via Real Clear Markets
- Will The Fed Taint The Election by Heather Long via CNN Money
- The Would Be Crazy To Raise Rates by Stephen Kalayjian via CNBC
- The Madness Of Negative Rates by Richard Rahn via Washington Times
- Treasury, Fed & The Next Meltdown by Ike Brannon via Real Clear Markets
- Surprise, Fed Was Wrong Again by Scott Sumner via EconLog
- What The Fed Statement Signals & Why by Mohamed El-Erian via Bloomberg
- FOMC Demonstrates Firm Grasp Of Obvious by Marc Chandler via Real Clear Markets
- Central Bankers – Let Them Eat Rate by Danielle DiMartino-Booth via Money Strong
THE MARKET & ECONOMY
- Is The S&P 500 About To Correct? by Brett Golden via …read more
Source: Weekend Reading: Yep… Still Looks Like A Trap
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