Our stock market needs some lithium. It’s got a serious case of the heebie-jeebies, and it seems there is no end in sight.
A couple of weeks ago it decided to throw a temper tantrum because our friends across the pond decided they no longer wanted a bunch of bureaucrats turned dictators telling them what to do. This somehow came as a shock to those bureaucrats and others around the globe, as they could see their world as they created it begin to unravel. The result was a two day Armageddon as markets from Hong Kong to New York dropped five to ten percent, only to reverse over the next three days right back to where they started. A five day, ten percent round-tripper that still has everyone scratching their heads and reaching for their medicine cabinet
It may have been incredible to watch, but it was virtually impossible to trade. At Good Life we dipped a toe in a few. Once the S&P 500 cut through the 2,020 level like it was melted butter, the possibility of a crash became more like a reality, and at 1,990 it suddenly looked like the sky could actually fall. But as if shot out of a gun, stocks immediately reversed and exploded right back to the starting point, as if nothing ever happened. All in just five wild and crazy days.
We are still in the camp that stocks will breakout of this tight range before the end of the year, and that break should be significant. The top end of the 2,130 range has been teasing us for so long now, and it’s back once more. If this is the break through it would be fine with us, but we won’t front run it. We’ve been here too many times before only to have the rug swiped from under us. There will be plenty of opportunity to catch the breakout train once it begins to pull away from the station, no matter which direction it heads.
So while this bipolar market continues to swing from one end of this ever tightening range to the other, we will be looking to cautiously dip our sutured toe if and when we see excellent risk to reward. A decisive break above S&P 2,130 on volume and we could be off to the races, while a drop below the post Brexit sky-falling low of 1,990 and the bears could have control. Until then we will endure these mood swings and temper tantrums being thrown by our stock market and our world as a whole. 2016 has been a doozy, and we are only half way through. Pass the Tylenol.