My regular daily TheoTrade chat participants will know we’ve entered the exact market environment I wanted to see. Here’s the thing - a lot of pundits out there make it seem like “nobody ever saw it coming” whenever a market pullback occurs. I’m here to tell you that there is nothing further from the truth. Call it laziness or a lack of ability - it does not matter. The talking heads are wrong.
The truth is that tops take time to shape up and play out. You’re not just going to wake up one day with the market crashing down - at least not without any signs that it was coming beforehand. But now, we’re starting to see a setup that could signal more volatility in the coming months…
Here’s What I See Coming Around the Corner
It’s really no different than weather forecasting. Just because conditions are there for a storm to form up, doesn’t mean it will always occur. But if you start hearing tornado sirens, it’s probably a good idea to head into the basement. I wouldn’t exactly say we’ve reached that point yet. On the contrary, I would label the current market condition as more of a “tornado watch.”
We’ve started to see global capital seek refuge in America’s “King Greenback, which has been on the comeback. Stocks have continued to bid. Treasuries have started to rally as well, and this is where the “flight-to-safety” understanding comes in.
Simply put, the United States offers the deepest and most liquid markets in the world. Before the SHTF, capital tends to flow into safer areas of the market. Remember, markets are global, and the United States is still the center of it all. The dollar hasn’t completely broken out yet, while Treasuries still seem to be in the early-stages of their rally. The equity rally, on the other hand, is a bit more mature. I still think we’ll continue to head higher into summer, but the bid is increasingly on shaky footing.
So, let this serve as a “market weather alert” to you. It’s not time to head to the basement, per se, but an advisory to look outside periodically. If you start to see a green sky or very dark clouds coming in, or the air seems almost “flat,” you’ll know what’s coming next. You don’t want to be scrambling to the basement door once you see debris flying around outside.
Until next time...