‘This is the most complicated non-roadmap, unanalysable situation I’ve ever seen in terms of having a lot of confidence in an economic prediction going forward…I just don’t see a fat pitch right now.’
They’re the words of Stan Druckenmiller, one of the best traders of his generation.
No wonder markets have been flatlining for two years when the smartest guys in the room are scratching their heads wondering what on Earth will come next.
All I can do in such a situation is hand over the reins to my trading model and allow it to tell me when it’s time to sit on my hands or come out swinging.
As I’ve been telling you for the past few weeks, there are signs that upside momentum is waning and if support gives way, we could see another swan dive lower in markets.
The Nasdaq has been surprisingly strong in the face of rising interest rates over the past few months. But I think the rally is nudging up against stiff resistance.
In Australia, a surprise interest rate increase has kicked the financials in the gut, which could be the catalyst that sees the ASX 200 fall below the 200-day moving average.
The ASX 200 has been stuck in a range for a long time. I have found the longer a range continues, the larger the volatility when the range finally gives way.
As Stan said above, making any predictions in a market like this is fraught with difficulty because the macro situation can change rapidly.
If inflation remains sticky and rates continue to ratchet higher, a hard landing is on the cards. If inflation drops rapidly and the Fed stops raising rates, a soft landing is possible and beaten-up stocks will rally.
I don’t think anyone has the answer at this point in time, so I will continue to respect the trading model — which tells me to tread carefully — and I will change my tune if the market tells me to.
Until next week,
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Murray Dawes,
Editor, Money Weekend
PS: Due to the King’s Birthday public holiday, there will be no edition of Money Morning on Monday, 12 June. We will return to our regular publishing schedule on Tuesday, 13 June.
