Realistically, What’s Left to Power Asset Prices Higher?
The comments below are an edited and abridged synopsis of an article by Adam Taggart
Here we are again: The markets are within a few percentage points of their all-time highs, but just can’t seem to break out above them.
We saw similar conditions in March/April and then again in July. Both times, the S&P dropped sharply after failing to remain above 3,000. Both situations presented profitable opportunities to short stocks.
Widening the perspective, it’s becoming increasingly clear that the force pushing the markets higher over the past decade has lost its drive. Today, the S&P is nearly same price it was a year ago, and close to where it was at the start of 2018.
In short, the S&P hasn’t gone anywhere for over 20 months. And in those 20 months, it has been forming a tightening wedge, with little room left for the status quo to continue. A break above or below must happen soon. Which way will it go?
Taggart discusses the bull case and the bear case; he finds the logic underlying the bear case much more compelling, which is why he has moved a percentage of his cash savings into a new short position, substantially larger than the one he placed in March.
“It’s not a move I take lightly… I’m only doing it because, in my estimation, the preponderance of evidence for a near-term reversal is overwhelming my strong default risk-averse preference to sit on the sidelines.”
“We should know soon which way this market breaks. If it indeed breaks downward, make sure you’ve prepared in advance for it.”