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Friday December 30th 2016
A Good Year For Stocks...Thank You Fed...2017 A Huge Unknown....
by Jack Steiman www.SwingTradeOnline.com
The market bulls are saying thank you to fed Yellen for a good year. After all, with the economy and valuations as they are, without super-low rates this market would likely be having a very hard time. Think about the world of earnings. We have seen decrease after decrease for the past two years, quarter by quarter, yet the market hasn't cared. A fed who forces money in to the market has allowed the market to keep trending higher overall. Valuations are ridiculous, but without any other good instruments to get value from, the market has maintained its upward trend. The big headache the market is facing as it heads in to the new year is an old story now.
Froth is ramping with the bull/bear spread at very dangerous levels. Four straight weeks at levels that are too high leaves the market vulnerable, but no one knows when that will kick in. It's out there, but froth can hang around longer than most think possible. The problem being when it snaps. That's when things go downhill quickly, but we're not there yet. You'll recognize it when it hits. The move down is sudden and violent. Respond to that only when it becomes a reality, but that doesn't mean you shouldn't have your guard up. Be conscious of the problem that's out there and adjust your game accordingly. So now 2016 is gone, and all-in-all the bulls can feel good about what took place, while the bears, as usual, lick their wounds. That will all change some day down the road, but, for now, the bulls can stick out their chests and feel good about 2016, especially since the prior two years gave them basically nothing. Put in the books folks.
So, with 2016 in the books in a happy way, folks are wondering about 2017. Whether the good times will continue to roll along. If weaker earnings didn't hit the market 2016 you must wonder if they would in 2017 if that trend continues. It's more at risk only because of two things. Rates and froth. The fed is promising three rate hikes in 2017. I am completely unconvinced that will happen, but that's her promise to the street. If earnings stay weak, and the economic reports don't improve enough, she won't raise three times, if at all. She's feeling the pressure to raise to matter what but she's tough and won't do it if the right events aren't taking place. Maybe the market won't care no matter what she does or does not do. If the bull wants to continue it will no matter how out of touch valuations are with regards to reality. Froth can keep rocking. That said the bulls must be very concerned about froth. That, to me, more than anything else, is the real problem. My guess is 2017 will be tougher on the bulls than 2016 was, but that doesn't mean it still won't be a good year for those frothing bulls. Until froth relaxes enough I'd be cautious. You want that bull/bear under 30% before getting more aggressive.
That said, maybe it won't matter and the spread will get over 50%. Who knows. Just understand that based on the past, there's far more risk heading in to 2017 than we've seen in a long time.
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