What is the Trade in Equities?
My thoughts on equities are mixed. On the one hand, we are still in a very low interest rate environment, with the debt culture fueling reckless expansion. Despite what people say about Trump, his policies have benefitted the US more than any other president in the past 150 years, despite maybe Teddy Roosevelt. Unemployment numbers are at lows, and black unemployment is at historic lows (even though Trump is such a 'racist'), GDP is in the 4% neighborhood (which was never the case under Obama).
On the other hand, there is only so far you can push the economy before it overheats. I think central banks are rushing to raise interest rates so that they have some padding for the next recession. The unemployment rate bottoming out is a big indicator of a coming recession. Further, the cracks are beginning to show. For example, everyone's goldenboy Facebook, drastically missed earnings and growth estimates tanking the stock by over 20% in one day. Debt is being way over-leveraged, especially in Canada. The few people who were lucky enough to get in before the great housing boom in Toronto have to take loans against their house to keep up with rising costs.
All considered, we are due for another recession and a big one at that, seeing as how we never really healed from the last recession, in my opinion. The question is not if but when. That being said, I still think the stock market still has some steam and the trade is to play the range, especially buying at the bottom of the range. Note that on a monthly chart, we are hitting a Fibonacci extension, and just visually we can see that this is asking for a significant retracement. I don't think there is a single technical indicator that would not indicate that this is overbought. No one would argue that we are due for a pullback, the question is what is the pin that will pop this bubble?
In conclusion, now is not the time to be looking for home runs in either direction in equities. Now is the time to play the range, look at levels, and diligently respect stop losses. Make sure you move your stops up to lock in profits just in case the markets turn against you. The markets are a battlefield and you need the best armaments you can get, so check out my indicators here!
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