Ultrahisham
2023-06-12

Euphoric exuberance all around

The markets have been in a very buoyant mood lately. And calm despite the macroeconomics. That just makes me more cautious. Despite overbought levels and market worries as well as bearish sentiments, the market keeps driving up. Now, sentiments have turned bullish and many are saying the markets have entered a new bull market. Really? I beg to differ.

In fact, the markets have all the hallmarks of a top.

1. Narrow breadth. Only 6 or 7 megacaps lead the market. This must be one of the thinnest 'bull market' ever!

2. The equal weight broad market market index is trending down. The divergence from the normal broad market index cannot be understated.

3. The market have never bottomed so way ahead of the Fed's final rate hike. And they may not be even done yet!

I can keep going on. But I will just keep it at that for now. The reason I believe the market is grinding higher is not because the economy is turning up. Rather, there is stubborn growth. And the economists out there will know what I mean when I say that the headline inflation numbers are misleading. Those numbers are trending down coz of energy prices and food prices which have dropped quite a lot. Strip that out to give the core inflation numbers and you see a different picture. It is in the 4-5% and has been hovering there for a year. So for the FOMC to start injecting liquidity into the market will be a big joke. If they do that, they might cause a big rally in equities but cause havoc in the bond market and I am quite sure they are wary of that thanks to data from history.

So stubborn growth it is. And that means stubborn inflation. So there is no leeway for liquidity to be injected into the system and without that it is hard to see a new sustainable bull market.

The only way for inflation to be brought back in control is for a recession and historical data supports this. And I am quite sure the Fomc knows this too. So please do the maths. And the markets are not pricing in a recession at these headwind levels!

So my trade is staying safe with cash. When nobody wants to buy is when I will want to buy. 😊

Disclaimer: Please kindly so your own due diligence as this is a sharing article and in no means financial advise. I am just sharing my opinions and thoughts.

Thanks for reading my commentary. Hope it helps!

Stay safe!


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Modified in.2023-06-12
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Comments

  • TTM Investor
    2023-06-14
    TTM Investor
    the market can be irrational longer than you can remain solvent. The more you think it should remain depressed, the higher it climbs. FED aggressive rate hike, interest rate much higher than what it was last year and credit crunch and the market is at 52 weeks high. The market doesn't need to make sense.
  • Ericdao
    2023-06-19
    Ericdao
    Trend is yr friend. It can be bcos of the few individual but overall it bring the mood up for the rest. History is for reference, don't over rely on it. Mkt is insane n somewhat manipulated. Follow the trend is the way to go
  • ALLinOne
    2023-06-12
    ALLinOne

    The equal weight broad market index is trending down, do you think that's significant?

    • Ultrahisham: 
      Well….the equal weight is diverging from the headline cap weighted index. In healthy bulls, they tend to trend up together with the Russell small caps. Russells tend to do well in early bulls. But when you look at their chart, it looks anaemic despite the bull calls.
  • lindsay877
    2023-06-12
    lindsay877

    Do you think the narrow breadth of the market is a concern?

    • Ultrahisham: 
      Yes I do. Plus unless this is an outlier market, no market has ever turned so early before the FOMC’s final rate hike. The earliest if I can recall is 2 or 3 months prior. And if this is a new bull, it means market bottomed 8 months back. I just dont buy it. And Fomc is not even done hiking!
  • WinfredBill
    2023-06-12
    WinfredBill

    It's great to see the markets doing well, but it's always good to be cautious.

  • The Investing Iguana
    2023-06-16
    The Investing Iguana
    Market exuberance but cautious. Signs of a top: narrow breadth, downward broad index, ahead of final rate hike. Stubborn growth, inflation. Stay safe with cash for buying opportunity.
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