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All Things Being Equal

This is a syndicated repost courtesy of NorthmanTrader. To view original, click here. Reposted with permission.

The ghost of 2013 indeed is hanging over this market. Nothing matters and the trend remains fully intact and new record market highs are made every month. November, December, January, February, March, and now April as any smaller pullbacks are continuously bought. Steady and guaranteed gains every month as markets continue to drown in liquidity and recovery optimism.

As such markets continue on their path of record disconnects of asset prices from the economy reaching over 201% vs GDP now:

 

As with any bubble valuation metrics are disregarded and new narratives spring up to justify the price action and previous metrics are discarded as irrelevant. This process will work until it doesn’t and frankly it has to because equity inflows have taken on epic proportions with people piling into the highest valuations in history

 

Which brings us to an interesting technical area in the price action:

 

This was a technical price zone outlined as a technical risk/magnet in January of 2021. Now, like most Wall Street analysts, this was a view of what could happen by year end, but $SPX in April has already blown out the year end price targets for most Wall Street analysts. There are higher price targets out there into 4500 and I’ve outlined a technical view of that possibility as well.

But reaching this 1.618 fib extension so early in the year says something.

In the short term $SPY is again acting like it’s September 2020:

Overbought, stretched, vertical, with gains based on many unfilled overnight gaps beneath:

Back in September 2020 this type of action resulted in a 10.5% correction. Whether we will see something similar or worse at some point this month or next remains to be seen, but all things being equal one can now observe something we haven’t seen since February 2020. A divergence of equal weight:

Note that as earnings season is upon us (and earnings reports will not only speak to results but also outlooks which will shed light on the reality of ramping inflation and rising cost structures) small caps are suddenly lagging:

So this steady as she goes non stop melt up is exhibiting some signs that something is afoot right as markets are reaching a key technical zone. My view remains: This market has an appointment with many open gaps to fill to the downside. On $SPX as well as on $VIX, hence, in my view, it’s important to know where these levels are as they may represent actionable pivot points to come.

Wall Street Examiner Disclosure: Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. No endorsement of such content is either expressed or implied by posting the content. All items published here are matters of information and opinion, and are neither intended as, nor should you construe it as, individual investment advice. Do your own due diligence when considering the offerings of information providers, or considering any investment.

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