There are times when the best explanation about why markets are behaving in the way they are is that they often do whatever hurts the most people.
If market positioning is such that everyone is on the same side of the boat, the odds are that the market will start marching in the opposite direction.
The last few months has seen the bearishness in the market reach a peak with huge bond market volatility after a series of bank failures leading to forced liquidation across portfolios.
Expectations are that a recession is around the corner and inflation remains at elevated levels.
And yet the market is rallying!
I have given up trying to understand every twist and turn the market makes.
My approach is to first accept that I don’t know the future and then go from there.
That’s why I have developed the technical analysis model that I show you in these videos.
Then all I have to do is listen to what the market is telling me, rather than trying to work out ‘the answer’ from the limitless amounts of information that bombard me every day.
The current state of US and Australian equities is short- and medium-term bullish and long-term bearish.
That sentence outlines a lot of information for you. The market could keep rallying, and probably will, based on short-term momentum — but there’s still plenty of resistance overhead that could cause trouble down the track.
When you consider the macroeconomic situation out there, the cautiousness in the charts makes sense.
The US commercial property stocks that I showed you a few weeks ago are continuing to fall at a rate of knots.
So I’m wary that the current bullishness could quickly turn to custard if a few of those companies start falling over and US regional banks see another round of failures.
There’s plenty of liquidity that will get drained from the market over the next six months, as loans from central banks start to get repaid and funded at higher interest rates.
The mortgage cliff in Australia still has to play out and although it probably won’t cause a housing crash, it could certainly dent consumer spending.
So there are plenty of hurdles ahead, but for the moment, the market is rallying…and who am I to argue with that?
Gold has been the area I have been focused on lately because the chart looks so good. I expect it to rally under a few different bullish or bearish scenarios for the wider market.
In today’s Closing Bell video, I update you on the S&P 500 chart as it heads towards key resistance levels and show you what to expect in gold now that it is threatening the all-time high.
Until next week,
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Murray Dawes,
Editor, Money Weekend
