Constructive Until The End…

After the failure of the Federal Reserve to truly stimulate the economy with trillions of dollars, the equity markets have done the heavy lifting. Because the stock market has rallied again past every historical norm, investor confidence has re-emerged, all in the space of one historic month.

One month of sustained gains has changed the picture everywhere. Most now truly believe that the problems and malaise that were evident as recent as last month have been nullified and that it is clear sailing regardless of the facts.

During this past month, the S&P 500 index has moved up over 125 points or over 8%. This gain comes after a rally that began in November of 2012 when the Federal Reserve promised to keep their monetary stimulus in place until unemployment reaches the mystical level of “full employment”.

That gave stock investors the green light to buy regardless of any news or scenario. We are now at all time highs for most of the indices and almost every indicator is past almost every record. There has been no pullback or correction and because “everyone” expects the overdue pullback, it has not yet happened.

Regardless of the reasons for this historic market, it has taken on the characteristics of past bull market phases. First the most economically sensitive groups rallied sharply. Then consumer stocks, then technology. Then the reach for anything with a safe yield combined with the “margin expansion” explanation. Then, finally, the short covering of the “worst” companies combined with the out-performance of the most lagging groups like shippers and Chinese scam companies.

Like in other bullish phases, it has taken the ability to set aside all caution and concern for risk in order to maximize profit. The exception is the long-term hold of those “old man stocks” with yield that has experienced historic multiple expansion. Even they are past historical multiple peaks.

But there is a road map and warning signs that must be heeded. The first to rally and most economically sensitive group, namely commodities, are very weak and have been this entire year. A year when records are being broken everywhere. Yet, according to analysts, during these historic gains the market is getting cheaper, not more expensive. Every doubter has hung up his hat after being “gored” by the bull. They have all been banished to a cave where they are cannibalizing each other just to survive as the market goes up every day without as much as a two day pause.

Certainly the latest phase in this Bull Market is fueled by endless POMO and by the April contributions to 401k’s combined with the largest “towel throw” in the past four years. And now with a one way market, low volatility and stability, we are invincible. But are we?

With 10% days in precious metals there is some new volatility afoot. Even if there is not and all negatives continue to be ignored, the technicals alone mandate a retracement that tests the breakouts that have occurred in individual stocks and the major indices.

A simple test of the latest primary breakout. After a parabolic breakout, that is the best case.

And based on my commentary you may think me “bearish”. “Agnostic” is the preferable description while I hold much of my old man stocks bought shortly after this record setting Bull Market began in 2010-2011. I have gone along for the ride without some mystical target top. I can appreciate that we are where we are, but can certainly doubt and even dislike how we got here!

Allow me to quote Bill Gates: “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.”

If you enjoy the content at iBankCoin, please follow us on Twitter