We have seen major us indices in a big bull run as the AI enthusiasm drives prices higher – we now have a bullish extreme and expect a correction some charts below to consider.
We are coming into the top of the trend channel and if it holds look for a reversal.
Sentiment is at a bullish extreme which we can see on the charts below with put call hate huge and the CNN Greed fear indicator at an extreme.
The market sees the Fed cutting rates in early 2024 which we think is unlikely the battle for inflation is not won yet and we can see on the charts below that headline inflation has come down but PCE core and wages remain firm also the inflation dynamic is similar to the one in the 1970s and we are only in the first wave with two more possibly to come. Finally, historically the Fed has to hold rates after inflation peaks and give inflationary pressure time to subside.
If interest rates stay high and no cuts come then this will weigh on economic activity two charts below the first showing that US data is no longer coming in above forecast and also the SPX V Copper - Copper is a long-term barometer of economic health and it's not buying the recent rally in stocks. the gap is huge and likely to close.
This time it's Different!
You hear this in every bubble and there are a lot of reasons put forward that stocks are not overpriced but they are and this bubble will end like all others with a big break to the downside