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Highway to the Danger Zone

Highway to the Danger Zone

On Thursday markets nearly broke their uptrend from the December lows, but once again a magic Friday overnight gap up driven by renewed hopes for an imminent China-US trade deal and supported by 9 Fed speakers trampling all over themselves to out dove each other alongside a flood of buyback money accelerated markets to a new weekly closing high. I say again because markets have become as boring as predictable: 9 weeks of consecutive gains, 9 risk free Fridays associated with a persistent crush of volatility and a virtual non existence of 2 way price discovery.

It is the trifecta of dovish central banks, hopes for a China trade deal, and a massive acceleration in buybacks that keep pushing markets higher on an ever narrowing highway to the danger zone and investors are throwing caution to the wind despite a continued deterioration in the global macro economic data.

From my perch nothing’s changed in the larger outlook and the rally is to be viewed with extreme caution and I recognize that I’m probably one of last people still out there raising any concerns.

Wall Street is now massively bullish with nearly half of analysts calling for new highs into the 2950-3250 $SPX range later into this year. And, frankly, as long as the trifecta maintains control over price who is to argue otherwise?

After all, market performance has been a key driver of the Fed’s decision to reverse policy, not only hinted at in the Fed minutes, but explicitly outlined by Fed governor Bullard this week:

“We did get a bad reaction in financial markets. I think the market started to think we were too hawkish, might cause a recession…I think all of this weighed on the committee and got people to change their thinking….the normalization process in the United States is coming to an end”.

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Olduvai IV: Courage
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