I spent yesterday visiting with clients in Connecticut. I had one meeting in particular that surprised me. I last met with this one client early last year and they wanted to talk with me because they adamantly opposed my bullish view at the time. If you remember from early last year, the market was rebounding from the 19.8% drop in the S&P 500 (SPX), and many were skeptical the gains would hold because they thought the drop was a sign of pending economic recession, and an acceleration of the trade war certainly wasn’t helping. At that meeting, the client pushed back on our bullish thesis to the point where I basically just ended the meeting because it wasn’t going anywhere. The opposite happened yesterday. They were very skeptical the market could pullback because of the upside momentum and no catalyst for correction. They pointed out the market has grinded higher no matter what has been thrown at it – including fear of a pandemic with the Wuhan Coronavirus.
We agree there is no identifiable catalyst for a pullback, and that is always the case when we get moves like this. It comes out of nowhere. The consistent message we have heard from our downgrade of the market earlier this week is that everyone wants to ride the wave higher and most believe that if signs of a top emerge, they will be able to take profits before a whoosh lower. I have been doing this for over 30 years and have yet to meet the trader that is consistently that good. I know I am not, and as a result pay attention to our indicators, even when they appear to not be working. This market is in extreme overbought territory no matter how you slice it, and our work continues to point to a period of profit taking – especially for Info Tech.
Again, we do not believe we are at “the” top, but do believe we are near “a” top that could produce a correction that doesn’t feel so “natural, normal, and healthy” when we are in it.
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