Smart Money Is Not Following the Current Move
Observations
In light of the Dow and S&P still being supported on the downside and making new highs, it is observed that smart or large money is not following. This makes it extremely risky to jump in and follow this unpredictable post-Trump bull run.
Research points towards the large corporates on Wall Street, who are insiders, not buying stocks, yet have a bullish tone. According to Goldman “..in is quarterly hedge fund Trend Monitor report, six weeks into the year [2017], the strong equity market has lifted the average hedge fund to just a 2% return YTD, once again underperforming the broader market YTD by more than 50%, while macro funds have generated a 0% return YTD…”
What this means
Either Hedge funds are sitting on the sidelines about to come in which will add to the the current rally OR they realise stocks are not a bargain and will not to put client money there.
Either way they are the Insiders and may be expecting a correction sometime this year, but what it doesn’t change is the fact that the Trading Volume continues to decline. Currently 80% of the trading volume is from HFT High Frequency Trading systems where no humans are involved.
Key: With declining trading volumes and continual upward price movements, the demand for shorts under the market will increase inevitably leading to a market correction.
Additionally
April may be the start of a quiet phase with only a few key dates coming up:
- April: There is no Fed policy meeting in April and the next important one is June 14th.
- April 28th: Congress needs to see if the Continuing Resolution, which authorises government spending, can be renewed failing which the U.S. Government will most likely shut down.
- April 23rd: The first round of the French election with the second round on May 7th, nothing special there.
- June is when the Fed would raise rates again which will slow the US economy even more.
Research predicts the stock markets to head south once we are in the environment of higher rates, sluggish growth and possibly defaulting on debt [Post: End of the US Bull Market]. This should all occur around June 2017.
Conclusion
With these observations, its safe to say there is a lot more downside than upside and the next key date is April 28th, where the continuing resolution expires. This period may be the calm before the storm with political and economic unpredictable.
Best,
Michael
