By: Kent Engelke | Capitol Securities
At a casual glance, it appears most market participants have finally capitulated believing momentum based trading utilizing technology and capitalization is the one and only investment strategy, further capitulating believing “crowded trades” will become even more crowded. As stated the other day, the new definition of risk is as follows…if it is going up, it is not risky and if it is going down, it is risky.
As with all “fail safe” trading strategies, this one too shall fail, but the question is when and how much further will this trade go.
Commenting about yesterday’s market action, equities declined nominally following the expansion of the probe into President Trump’s business dealings, thus suggesting the inquiries into the administration are not market sensitive. Treasuries rallied on the headlines only to give up the vast majority of their gains by days’ end.
As stated above, the markets are completely driven by headlines and momentum. The financial system has great liquidity because of Fed policy, liquidity that has not gravitated to the real economy, but only to the largest capitalized names and the Treasury market.
At some juncture, the environment will change. Typically, a transition point occurs when all are convinced the current paradigm will remain forever.
What will happen today?
Last night, the foreign markets were down. London was down 0.03%, Paris was down 0.62% and Frankfurt was down 0.83%. China was down 0.21%, Japan was down 0.22% and Hang Sang was down 0.13%.
The Dow should open flat ahead of next week’s FOMC meeting and deluge of earnings. The 10-year is up 4/32 to yield 2.25%.