About the futile waiting of the markets for Godot – and the consequences if Godot doesn’t come…
Yesterday, Wall Street’s stock markets once again reached new all-time highs, with the S&P 500’s market breadth surpassing the 3100 mark for the first time in its history. It is a mixture of two main factors that drove the bull market. Firstly, the Fed’s dovishe turnaround, which just under a year ago thought it could raise interest rates further. At the same time, it wanted to further reduce its balance sheet to “autopilot”. In the meantime, this same Fed has been buying short-dated US government bonds with a volume of 60 billion Dollars per month since the beginning of November. And at the same time it is pumping 120 billion Dollars a day into the repo market, which has obviously fallen into difficulties. Today Jerome Powell will reveal the state of affairs from the Fed’s point of view. 5 p.m. publication of the speech text, then questions from US Congress deputies.
The second rally reason for the stock markets is the hope for a deal in the trade war between the USA and China. All this is reminiscent of the play “Waiting for Godot” by Samuel Beckett. You wait for Godot, who never appears. In the meantime there is a lot of theorizing and speculation. Remember the countless reports (from Western agencies) that a deal is imminent…
All in all, this leads to euphoria
Visible in the extreme values of the Fear & Greed index. Also visible in the short volumes on the VIX, which are at all-time highs. Further parameters at a stop (Lance Roberts long positioned in the rally) are shown in his lucid article “Technically Speaking: A Correction Is Coming, Just Don’t Tell The Bulls…Yet.“. Lance Roberts is now significantly increasing his hedging positions.
We could say that the stock markets now only need one message to start the overdue correction. That could be Powell’s speech. That could be the non-arrival of Godot (ergo not a trade deal that has already been priced in several times). That could be developments around the impeachment procedure (the testimonies broadcast on US television are starting today) – or something that nobody has yet “on the pointer”.
In terms of charts, at any rate, there are signs of something, as an analyst at the otherwise permanently bullish US financial channel CNBC shows:
Even otherwise bullish representatives of Wall Street now expect a correction – and argue fundamentally: