Weekend Reading: Stuck In The Middle

I have written previously about being stuck in a trading range.

“Over the past couple of months, we have continued to drift from one economic report, or Central Bank meeting, to the next. Each report and meeting have continued to leave market participants confused as to what is going to happen next.

Is the economy improving? Or not?

Will the Fed hike rates? Not?

The bulls and the bears have met at the crossroad. However, neither is ready to commit capital towards their inherent convictions. So, for 43-days, and counting, we remain range bound waiting for what is going to happen next.”

Chart updated to present:

The problem with going nowhere is that it makes managing money much more difficult. With the market having broken the bullish trend line from the February lows, as shown below, along with remaining overbought with a sell signal in place, the risk to the downside outweighs the potential for a further advance currently. With downtrend resistance from the previous highs pushing prices lower, the risk of a break below 2125 is elevated. Being a bit more cautious given the current technical backdrop will likely be prudent.

While there are many simply suggesting just to buy into passive indexes and hold them, the brutal reality to such strategies have destroyed the ability for many to ever actually reach their investment goals.

However, despite the weight of evidence suggesting the markets are currently in a third bubble since the turn of the century, the commentary to ignore the outcomes related to such asset inflations is actually quite astonishing. Such is the result of a market seemingly immune to declines due to continued support, or at least belief thereof, from Central Banks.

But, just as was witnessed following “The Great Depression,” the bursting of the next asset bubble will likely once again drive participants away from the market for an entire generation, or longer. The problem for individual investors is the “trap” that is currently being laid between the appearance of strong market dynamics against the backdrop of weak economic and market fundamentals. Ignoring the last two to chase the former has historically not worked out well.