Let's start with ME. I am the boss here and there is nobody else to tell me that I am wrong, except for - MARKET.
Market is the most humbling mechanism, reducing adults to small children asking for their parents' mercy right after they have sinned. Market is always right, and the only ones incorrect are the players on the wrong side of it. Market is not to be argued with for extended periods of time, unless a strong conviction and a hedge (or a stop) is present. Market always punishes the complacent ones and rewards the patient ones. I was wrong, I get spanked, I move on... Oh yes, I learn how to be on market's side! (contrarian traders, disregard this last part)
With above in mind, let's quickly assess (funny word) the situation. New 3-yr bull market highs were made in some U.S. equity indexes, with new closing highs in place. So where do we go from here? For a moment today I caught myself thinking I should probably go long. And perhaps the right thing was to buy the breakout, but I am not the one to reverse quickly, so I just observe. The interesting part about this is when bears become bulls - beware of the top. I am no perma bear, I just wanted a pullback to 50 dsma to buy. Short-term bears turning bullish is ok, but perma bears (like Taleb or Roubini) going long scares the daylights out of me. These are bright individuals, thousand times smarter than me - who am I to argue? So instead of plainly saying I feel that we are at short-term top every time we go to new high, (as I have been unsuccessfully looking for one since SPX 1330), I will argue by providing (below) a list of worrisome things bulls will have to consider, as bears are getting run over (yours truly included). Since the notion of U.S. decoupling is running wild on Wall Street, I will discount Europe and Emerging Markets slowing growth affecting S&P 500 earnings as priced in. So let's just concentrate on the next four items.
VIX closed below 15 today. When such happened in the last 5 years, it rallied hard and demolished everyone in its path. Note how falling wedge with apex at support level has once again developed.
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RUT, DJT, and SOX are not confirming new highs on SPX, DJI, and COMP. They are struggling to get back above 2012 highs, let alone last year's highs.
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The same non-confirmation of risk rally could be seen in Copper, AUD, and CAD. These are commodity plays which should be making new highs along with SPX. Incidentally, CRB index (not shown here) is also not cooperating.
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30, 10, and 5 year U.S. treasury yields are slowly rising, but remain significantly below last year's highs, yet another non-confirmation. It looks like bond market has serious doubts about this equity rally, and economic recovery overall.
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