Canary In The Coal Mine
First, did you expect the cut to come?
Second, did you expect the lower end of .25 or the higher end of .5?
Third, what should we do about this?
Well there is still a bunch of things to observe on this. Let's use the SPX to get into it.
As you can see at 2pm ET the cut was announced immediately and it ripped up quickly and stabilized in the first 30mins. Shortly there after everyone took the short they knew was available and closed out the day lower than the high.
What happened today the 20th was a massive gap up that the futures held with another ATH. We still had the downward pressure leading us at close. Now let's go macro.
First question at looking at the chart, is this something you would buy now?
That same question is alluding to the overall market, in looking at this chart will the economy continue to grow? If you look closer the SPX had a complete 1 YEAR RUN up to an ATH. That is insane growth and are we expecting more. Let's also remember this is the first Fed cut in 4 years. Did you forget that? 4 years.
In looking at the overvaluation in the market that we've had for months now my sense is we have been in a recession but it hasn't trickled in just yet. I do feel we are in the euphoric state of the market now that the rate cut has influenced more retail investors to go in. Watch out as euphoric states are fun but they crash hard.
So what else alludes to this, first Japan still has another carry trade to release (remember August) and that would most likely happen this year. And if you look at the other indexes with all of this pump today guess who didn't even touch their All Time High: QQQ and Russell 2000.
What do these hold? Small and mid cap companies. The reality of stocks that aren't always in a news hype bubble that can drive up prices to overvaluation state.
If we were truly in good economic shape, the rate cut would have followed thru on these. This is not the case. A recession is more than likely.
The canary is in the coal mine and be mindful during euphoric states.
Jamie