Feelin' A Feelin'

For those of you who follow FT on Twitter, you know from this morning’s tweet that I’m getting a little fed up with the price action of late.  Today certainly is no exception as ‘news’ of a likely extension of the current tax code has given bullish investors yet another reason to buy stocks and commodities while shunning Treasuries and the U.S. Dollar.  Just over an hour into the trading day, the S&P has put in a new 52-week high at 1,235.05.  This has been followed up by new highs in gold, silver, natural gas, and crude oil.  The only solace a lonely bear like me has at this point is that these new highs were put in very early in today’s trade and all markets have seen prices back off from these levels, which could be an indication of weakening conviction.  In the case of gold, I’ve been looking at an RSI indication that suggested that the $1,430 level could market the near-term top for the yellow metal, so it’s encouraging to see that indication holding so far today.  Whether or not this indication, as well as the pullback from intraday highs in all other markets, will prove sustainable remains to be seen.

At the risk of beating the proverbial drum, I can’t shake the concerns I continue to have for the equity and commodity markets.  Even if you are willing to view recent economic data as indicative of an imminent improvement in global growth (and to be fair this data is compelling on this point), the fact that most ‘risk-on’ assets have seen HUGE gains over the past three months tells me that they are ripe for a sizable pullback.  Sure, the S&P 500 saw a 4% dip during November, but this ‘correction’ was incredibly shallow given the scale of the previous run higher.  A drop to the 1,130 - 1,150 level would have been much more consistent with the 10% rule of thumb that traders look for.  And with a significant amount of support sitting at this level, this would have further solidified the foundation of the current rally and go a long way towards moving equity bears into the bull camp.  But as things have played out, prices have moved relentlessly higher with what seems to be a disregard for the potential pitfalls of record federal stimulus and sluggish employment growth.  This is not to say that a generally positive trend in share prices isn’t warranted.  In fact, I think I would actually agree with an intermediate-term bullish outlook given the data we’ve seen.  But the fact remains that buying at these levels is simply fraught with a great deal of danger, both from a valuation and momentum standpoint.  As I pointed out in a previous post, the technical indications certainly point to a stretched market condition, so risk is disproportionately skewed to the downside.  For those who didn’t see the chart I’m referring to, here’s an updated version.

Is the kind of chart you’d want to buy into?  Clearly, I wouldn’t take the plunge.

Until later….