The S&P 500 is trading at new all-time highs. The index is up more than 18% for the year. It’s up almost 4% in just the past month alone.
There’s no doubt, the bull market is alive and well.
But I can’t shake the feeling that the bulls are being set up on this recent move.
Things are just too comfortable. It seems no one is concerned about any possible downside. Everyone in the financial media is “buy, buy, buy.” There’s hardly ever a mention of risk.
Oh sure, we get the obligatory reference to the highest P/E valuation ever. But it’s shrugged off. “The new tax bill changes everything,” they say.
I’m not so sure.
Traders should be defensive here. There are just too many warning signs in the recent action. For starters, the NASDAQ is lagging. It hasn’t confirmed the recent high in the S&P 500.
Semiconductor stocks – which are usually market leaders – are lagging badly as well. The VanEck Vectors Semiconductor ETF (SMH) is still 6% below its November high.
VIX options are pricing in a much higher VIX over the next day and the next month. Plus, the chart of the VIX looks to me like it’s poised for a sharp move higher. All of the technical indicators on the intraday charts of the S&P are overbought.
I’m not even including the speculative action in bitcoin in the discussion yet.
Yes… it’s Christmastime – which is a hugely bullish seasonal time of the year. Normally, I’m looking to buy stocks on weakness during this season.
But I’m not about to buy anything here (except gold stocks). I just have an uneasy feeling about things. I’d rather stay sidelined and miss the extension of the recent stock market rally – if it happens.
Maybe I’ll look back a few weeks from now and wish I had told folks to get aggressive on the long side, lever up their positions, and try to make the most money possible as the stock market extends its rally into the end of the year.
But then again, maybe I’ll be glad we sidestepped whatever carnage the Market Gods might throw at us over the next few weeks.
From my perspective, whatever that’s worth, I just don’t like the look and feel of things right now. I’d rather miss out on the potential gains of an overpriced market – one that still might race higher into the end of the year – than suffer the consequences of buying overpriced stocks in an extended market.
Holding a large percentage of cash is a good thing right now.
Best regards and good trading,
Today, a reader asks for Jeff’s thoughts on “millennials’ gold”…
Recently an online commentator commented that as gold was the safe haven for our generation, bitcoin is the safe haven of the millennials.
Do you think the importance of gold and, hence, its position as a safe haven, will diminish as bitcoin grows?
Jeff: Hi Jerry, thanks for writing in.
There’s no doubt that bitcoin is the young person’s version of gold. Someone was on CNBC yesterday morning talking about why he liked bitcoin. All of the reasons were similar to why we old folks like gold… It’s a store of value, the government can’t just print it out of thin air, it’s portable and can be used as a currency anywhere in the world, etc.
But I’m not convinced that, if bitcoin didn’t exist, the younger generation would be buying gold instead.
Gold is old. It’s a relic. There’s nothing sexy about it. When I talk to my kids about the practicality of owning gold, their eyes gloss over. I might as well be teaching them how to change the oil in a car – which is also something the younger generation has no idea how to do.
Meanwhile, bitcoin is hot. It’s anti-establishment. It’s rebellious. And the younger folks love that image. So, they’re flocking to it.
Of course, it helps that bitcoin is up 1,200% this year while gold is marking time.
Maybe gold needs a new Public Relations agent?
But, back to your question… Do I think that gold’s position as a safe haven will diminish as bitcoin gains popularity?
In a word… no.
People aren’t buying bitcoin today as a store of value, or as disaster insurance. They’re buying bitcoin because it’s hot, sexy, and running wild.
There’s nothing wrong with that. But it’s not the sort of trend that will last for generations.
Do you have any trading stories about gold… or bitcoin? Send them in here, along with any other questions or suggestions you might have.