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    The One Factor that Trumps the New Market’s Giddiness

    January 22, 2020

January 22, 2020

The One Factor that Trumps the New Market’s Giddiness

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All measures of market sentiment are at highs or extreme highs, from put/call ratios, to CNN’s greed index, you name it. The outside worlds focus for this outright giddy disposition and  talk of a potential “melt-up” in equity values focuses on the following four elements:

First, the US and China are likely to reach a “phase-one” deal that would at least temporarily halt any further escalation of their trade and technology war.”

“Second, despite the uncertainty surrounding the United Kingdom’s election on December 12, Prime Minister Boris Johnson has at least managed to secure a tentative “soft Brexit” deal with the EU, and the chances of the UK crashing out of the bloc have been substantially reduced.”

“Third, the US has demonstrated restraint in the face of Iranian provocations in the Middle East, with President Donald Trump realizing that surgical strikes against that country could result in a full-scale war and severe oil-price spike.”

“And, lastly, the US Federal Reserve, the European Central Bank, and other major central banks have gotten ahead of geopolitical headwinds by easing monetary policies. With central banks once again coming to the rescue, even minor “green shoots” – such as the stabilization of the US manufacturing sector and the resilience of services and consumption growth – have been taken as a harbinger of renewed global expansion.”

However Contrary Thinker feels, if there is an outside world that impacts the mood of the market, the one factor that brings the greatest amount of uncertainty and the most difficult to quantify is  this guy, “Donald John Trump.” He is a force of nature that brings the greatest amount of unknowable effects.

In a few words the “deconstruction of the administrative state;” destroying the international order that the US and its allies created after WWII;” “the provoking rather than supporting US Asian allies, such as Japan and South Korea;” the impeachment process and trial that will lead to bipartisan warfare, and providing the ROOSEVELTIAN Democrats running for their party nomination a policy platform that financial markets find unnerving plus a regime change on the first Tuesday of November 2020.

The extreme bullish sentiment suggest that most market observers will have a hard to change mentality even when there is a 10% to 20% correction. The majority of analyst I read and hear in the media say the extreme bullish outlook will be toned down with only a mild correction.

To the contrary, the linier mentality is here to stay providing the needed liquidity for profit taking and the mind-set will be buying dips throughout 2020, until some type of climatic low.

These headlines highlight what not to expect. Market (price) based models foreshadow a greater than average bear market over the average time span of historical bear markets.



It’s not random luck to have missed the pandemic debacle. The market could have already been down by 20% when the news hit. But it wasn’t and good market timing is a good risk management tool. Find out today

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Jack F. Cahn, CMT
Contrary Thinker Since 1989,
Copyright 1989-2020

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