Warning Complacency
The comments below are an edited and abridged synopsis of an article by Sven Henrich
The world is fearless again; the higher we go, the more bullish people become. The same people that were bullish (and wrong) last year are bullish again, and as prices rise relentlessly, everybody is a genius again.
Central banks don’t filter into the analysis, otherwise one would have to admit that that’s what it’s all about. Bad data doesn’t matter, because stocks go up. A China deal will be positive and a catalyst to buy stocks. If there is no real China deal, a cosmetic one is good enough. Since bad data doesn’t matter, any good data is bullish too. In short, bad news is good news, and good news is good news.
It’s blind faith in a system that never has to face any consequences, as the central bank put reigns supreme.
It may turn out that way. Henrich has asserted, with data to back him up, that central banks remain the biggest price driver of everything. But he’s not at the point of giving up because of the charts. He has a belief that structural forces matter, and that these unelected, unaccountable economists who are constantly wrong about their projections are on the verge of losing control of their dishonest narratives.
As it stands, everybody is bullish again with nothing but upside targets. ‘New highs are coming!’ is now the predominant narrative.
We can’t go by what other people say. We must go by what our analytical output says, and that has us on a contrarian path that is not easy.
Once a pullback commences, the size of the volatility wedge suggests an initial retrace target toward the MA zone (chart included). What happens next will have to be assessed at the time. Risk happens fast.
Complacency may be rampant right now, but the charts and patterns suggest a larger volatility spike is yet to come.