by Umar Farooq
Donald Trump is bragging about the lift he has given to share prices. Bourses around the world are taking their lead from Wall Street and heading higher. What does that mean? It means the stock market is going to crash because sooner or later optimism creates recklessness and boom will turn to bust. All that’s in question is how big the bubble will get before it bursts and when that moment will come.
Stock market hits new high with longest winning streak in decades. Great level of confidence and optimism – even before tax plan rollout!
— Donald J. Trump (@realDonaldTrump) February 16, 2017
Source: theguardian.com
For the time being, Wall Street is being supported by negative real interest rates and the prospect of tax cuts to come. That means stock market records will continue to be broken over the months ahead. Until the moment comes when traders get alarmed by rising interest rates, growing budget deficits, protectionism or a combination of all three. Wall Street is getting intoxicated on illogical enthusiasm. But as we know the wilder the party the longer the hangover and so the stock market is going to get the hardest knock once this Trump rally is over.
One of the proprietary indicators of goldseek.com is telling a different story. According to this indicator, “Mass psychology is very clear when it comes to the markets; the masses need to embrace the markets before one can claim a top is close at hand. The masses so far have refused to embrace this market for a prolonged period. In Jan of this year, the gauge was in the middle of the Mild Zone, but as you can see as of the last reading, the gauge has just dipped into the “severe” zone. Given the current trajectory, we expect the needle to move deeply into the “severe” area in the very near future. Instead of pulling back the markets have continued to trend higher, and at this stage of the game, patience is called for. Ideally, the markets will let out a large dose of steam, but markets do not usually cater to your needs; barring a substantial pullback a nice consolidation would suffice. Market consolidations drive key technical indicators into the oversold ranges and allow the market to build up steam for the next upward leg.” news.goldseek
Source: news.goldseek
“This rapid change in Crowd sentiment validates what we have stated all along last year that the final part of this ride is going to be extremely volatile. It also confirms that all sharp pullbacks have to be viewed through a bullish lens, regardless of the intensity, until the trend changes. The trend is still up, and the masses are far from euphoric. Let’s not forget that Trump continues to inject a massive dose of uncertainty into the markets. When it comes to the markets, uncertainty is a bullish factor, for it means volatility is going to soar and volatility is a trader’s best friend.” news.goldseek
In short, every strong bull market has to experience one inflexible correction, and this U.S. market is not going to be an exception. This pullback will be followed by an even more dominant rally, and towards the tail end of this rally, investors will embrace this market with enthusiasm. Sentiment readings will climb, and everyone will be dancing up and down in Joy, and that is when the hammer will fall bringing an end to this bull market and triggering the first phase of a stock market crash. For now, caution should be exercised, but shorting this market is not something the practically sensible investor should consider; at least not until the stock market experiences a trend change.