Monday, February 13, 2017


This is what it feels like when the market seems like it will never go down.  You have the contrarian indicators, Dennis Gartman and the CNBC Fast Money group bulled up.  You are making new highs on hopes of a "phenomenal" tax plan in a couple of weeks.  The only thing that would actually top this would be to have the tax plan get through Congress, which will happen in the middle of the year.

You get these surges of optimism based on fundamentally questionable catalysts.  Rarely do you have a news catalyst that is long term fundamentally important.  The ones that are usually relate to monetary policy.  Fiscal policy is vastly overrated, as fiscal expansion only shifts assets from bonds to stocks.  It doesn't increase nominal wealth like monetary expansion.  That fundamental fact has been lost in the Trump optimism.

In the long run, fundamentals rule out over paper napkin economic conjectures by market forecasters.  Finance is one of the largest sectors of the economy, yet it is one of the least scientifically studied.  The hard sciences and engineering are much more rigorous in their analysis, even when there is less money on the line, compared to finance.  It must be the lack of 100% absolutes in finance which prevents the academics from fully grasping what is important and what is likely to happen.

So we are finally getting that early 2017 surge higher which I expected would form a short term top.  My 2015 playbook is valid as ever, except there is one key ingredient which is different:  lack of volatility.  This is one of the reasons why I have been reluctant to short despite all the high optimism readings and inflows into equities.  I am sure we will be getting that volatility soon enough if this market goes even higher.  The higher they rise, the harder they fall.

2017 is setting up to form a massive top that should lead to the next bear market, and really good trading markets for several months to come.  As the markets grind higher, I can sense the trading drought ending.  It should happen by the summer at the latest.

Relax while you can, it is going to get busy for S&P futures traders in a few months time.

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