The U.S. stock market remains smoking hot, almost too hot.
The S&P 500 is trading at its highest level since April of last year, while the Dow Jones Industrials just ended a 13-day winning streak, THE LONGEST STREAK SINCE 1987 (Remember 1987?). The CNN Fear and Greed Index is at two-year highs, while the VIX is at two-year lows.
Things are getting pretty frothy.
For weeks we’ve been saying that we’re in the middle of a slow topping pattern, with probably a little more time left on the meter for the bulls to run it up even higher. Strong sentiment and low market volatility have been driving stocks right smack dab in the face of rising interest rates and a troubling economic backdrop. But what has been a broad rally fueled by the techies is starting to look more like giddy mania, and that raises concerns we may be getting over our skis. Strong sentiment and outright euphoria are very different beasts. Sentiment steadily drives markets higher, while euphoria has a way of killing them and quickly.
The only way stocks can maintain this steady-Eddie seven-month rally, and not suddenly burst into flames, is for the bulls to take a short vacation to allow stocks a little breather. If not, this buying frenzy could run stocks over the cliff sooner than expected.
So as the topping pattern continues to move along, realize risk is rising along with it. We urge active traders to be aware of where we are in the cycle and consider starting to play a little lighter, tightening stops, and taking good profits when offered. Stay cool.
The views expressed represent the opinion of Good Life Asset Strategies, LLC. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness.
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