Through December and January the market was on a relentless rip higher and lesser quality assets appeared to bubble (cryptocurrency - etc). It appeared to be the blow-off top we had been waiting on. Since then we have had a small market correction with much increased volatility which has now lasted a few months. With the Trump tax cut package implemented corporate earnings would certainly be great for the next 6 to 12 months on comp basis. I am viewing the tax cuts as the final can kicking (this expansion has been fueled by a number of can kicking maneuvers, started by the massive stimulus package with debt and giveaways - then insane money printing and daisy chain bond and asset purchases by all central banks - finally a tax cut package that also creates trillion dollar deficits). The question is how long do we get the economic benefits from the tax cuts and when does the sugar high run off? If corporations make real investment (not just one time bonuses and stock buybacks) then it is quite possible this latest can being kicked down the road could roll a little further than I expect. Leading economic indicators of all types are still showing nice expansion which basically says there is no way (other than black swan stuff) do we get a recession in the next 6 months. But I am certainly feeling like I am picking up pennies in front of a steam roller when I think about buying some things here during this correction. From a technical perspective many of the chart guys are saying the top has to be retested (or a near miss) as a rally of this length and magnitude doesn't just end with a shrug. So I guess the answer at the present time is to keep trading with a flat bias (buy the dips - short the rips) until both fundamental and technical patterns say to "stay in cash or stay short".
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Paul SaadSenior Manager, Paul Saad and Associates, LLC Archives
May 2020
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