Another week of choppy market action and the end result was a move to “nowhere.” As I stated previously, the current action is either a consolidation process or a topping process. To wit:
“First of all, it is worth noting that despite all of the recent excitement of the markets advance, it remains extremely confined in a sideways trading range. This can either be good or bad news.
The Good: Sideways consolidations during bullishly biased markets provides the ability to work off excesses built up during the previous advance to provide the “fuel” necessary for the next leg higher.
The Bad: However, sideways consolidations can also mark the end of the previous bullish advance and the beginning of a bearish decline.
How do we know the difference? Normally, fundamentals tell the story. When earnings are still rising, market consolidations tend to resume to the upside. However, declining earnings have historically marked market topping processes much as we see today.”
While this time could certainly be different, historically such has not been the case. At this juncture, the market has yet to confirm whether the recent price action is just part of a broader topping process or if the now somewhat well-aged bull market is setting up for a final advance. The most interesting aspect is the similarity between the current market action and that seen prior to the beginning of this year.
With summer fast approaching, the markets still appear to be very fragile exposing investors to a similar “swoon” in the months ahead. This is particularly the case with both the economic and fundamental underpinnings still showing signs of deterioration.
The inherent problem of “eternal bullishness” is the “willful blindness” to the underlying data in an effort to chase short-term returns. This leads to the unfortunate problem of being “all-in” on every hand which has a devastating consequence when a mean reverting event occurs.
In the end, it does not matter IF you are “bullish” or “bearish.” The reality is that both “bulls” and “bears” are owned by the “broken clock” syndrome during the full-market cycle. However, what is grossly important in achieving long-term investment success is not necessarily being “right” during the first half of the cycle, but by not being “wrong” during the second half.
For now, there is little to do but wait.
- The Rise Of Extremism by Danielle DiMartino-Booth via Money Strong
- Central Banks Have Run Out Of Ammo by Stefan Gerlach via Proj. Syndicate
- Fed Made The Poor, Poorer by Narayana Kocherlakota via Bloomberg View
THE MARKET & ECONOMY
- The Economy’s Real Drag Is Us by Robert Samuelson via Washington Post
- Why The 10-yr Is Going Back To Record Lows by Jonathan Garber via BI
- I Dissected The S&P 500, Heres what I’ve Found by Rob Isbitts via MarketWatch
- Retail Rout Signaling Economic Weakness by Randall Forsyth via Barron’s
- 50,000 Foot View Of Aging Bull Market by Kevin Marder via Marketwatch
- Why Stocks Are Overvalued Right Now by Brent Botwin via TheStreet
- First Choice For Long-Term Investing by Jeremy Grantham via Barron’s
- Analysts Finally Find Reality by Eric Bush via GaveKal Research
- Carl Ichan: Betting A Major Crash by Chris Matthews via Time
- When Politics Trump Government Stats Zachary Karabell via The New Yorker
- US Job Growth Continues To Fail by John Crudele via New York Post
- Lies, Damn Lies & Statistics by Rob Arnott via Research Affiliates
- You Can Be Too Pessimistic by David Merkel via Aleph Blog
- Social Security Storied Keep Piling Up by Philip Moeller via CNBC
- Guaranteed Income, A Guaranteed Bad Idea by John Tamny via RCM
- Biggest Risk: Investors Still Dancing by John Hussman via Hussman Funds
- It’s No Hedge Fund If They Outrun The Bull by Cliff Asness via Bloomberg
- Recession’s Trauma Left Deep Scars by Ben Leubsdorf via WSJ
- Gundlach “S&P Could Go To 1600” by Tyler Durden via Zero Hedge
- A Highly Unusual Breath Milestone by Dana Lyons via Tumblr
- Do As I Say, OR Do What I Do by Meb Faber via Faber Research
- End Of The Debt Super Cycle? by Jesse Felder via The Felder Report
“If you have large cap, mid-cap and small-cap, and the market declines, you are going to have less cap.” – Martin Truax
Questions, comments, suggestions – please email me.
Lance Roberts is a Chief Portfolio Strategist/Economist for Clarity Financial. He is also the host of “The Lance Roberts Show” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report”. Follow Lance on Facebook, Twitter, and Linked-In