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Welcome to the Overbought Market! | The Mesh Report

Welcome to the Overbought Market!

John Thomas September 18, 2017 Comments Off on Welcome to the Overbought Market!

Who would have believed it?

Here we are in the worst trading month of the year, averaging a loss of -1.1% for the past seventy years, and the markets are trading at new all time highs.

What is even more amazing is that the Mad Hedge Market Timing Index is trading at a grasping, avaricious, severely greedy level of 77, up sharply from the 18 low in August.

The markets truly reached Teflon status this week, shrugging off another North Korean missile launch over Japan.

They last time that happened, the Dow Average plunged 270 points in hours.

“Missile fatigue”?

Of course, it’s all about tax cuts, which have the potential to raise equity markets by another 10%.

If the president can do a deal with the Democrats on a debt ceiling extension and DACA, can tax cuts be far behind?

What would such a package look like?

For that you have to look back and dust off Hillary Clinton’s last proposal: a 25% corporate tax rate, reduction of home interest deductions to loans under $500,000, and higher taxes on the wealthy.

It all sounds mighty familiar.

Until we actually get a tax deal, probably sometime in 2018, stocks will keep rising for the same reasons they have for the past 8 years: earnings, earnings, earnings.

Indeed, we are only a month away from the beginning of another blockbuster double-digit quarter of earnings reports.

But if history is any guide, bad things may have to happen first.

And making me doubly cautious is that the Volatility Index (VIX) has gone all the way back to the $10 handle.

In other words, this is a market that has trouble written all over it.

It is with all of this in mind that I stuck my toe back in the water with a new long position in Barrick Gold (ABX) which is the world’s largest gold miner.

I may add more positions in the precious metals space next week. Worst case they move sideways, best case, they rocket….again.

With the expiration of my trade in Goldman Sachs (GS) on Friday at its maximum profit point, I am left with a single position.

I have to admit that I have scaled back my trading significantly at these elevated market levels.

And I’ll be honest.

After 24 consecutive profitable Trade Alerts since June 23, I have earned followers a blockbuster 21.07%. I have to allow readers time to count their new money.

There is only one new event of note this week, the Fed decision on interest rates on Wednesday.

Markets may go to sleep until then.

On Monday, September 18 at 10:00 AM EST we get the September NAHB Housing Market Index. The only question is how hot it will be.

On Tuesday, September 19 at 8:30 AM EST we learn the August Housing Starts. The Federal Open Market Committee meeting starts in Washington DC in earnest.

On Wednesday, September 20, at 10:00 AM EST we get the August Existing Home Sales.

At 2:00 PM EST the Fed announces a 25 basis point rise in interest rates. Or will they hold fire in the wake of the twin hurricanes?

Thursday, September 21 at 8:30 AM EST we learn the Weekly Jobless Claims, which will most likely mirror last week’s gigantic increase.

At 10:00 AM the August Index of Leading Indicators is released, a composite of 10 forward looking measures of the economy.

On Friday, September 22 at 9:45 AM we receive the PMI Composite Flash Index, a current estimate of private sector output.

Wrapping up the week at 1:00 PM is the Baker-Hughes Rig Count, which delivered a rare fall last week.

As for me,

I will be donning my heavy work gloves and spending Saturday joining 12 million others for the National Coastline Clean Up Day.

Here in the Bay Area they award a prize for the most interesting find.

A few years ago, the winner was a kid who found a note in a sealed bottle written by a homesick Russian sailor to his girlfriend back in Siberia. It had floated across the Pacific Ocean.

I should be so lucky!

Good luck and good trading!


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