Black swans. As stated by a renowned 25th century philosopher, it looks like déjà vu all over again. We have three possible black swans: 1) China with shadow banking and real estate; 2) Energy with Saudis driving down frackers, causing problems for high-yield US energy players; 3) global debt has risen by $50 trillion since the Great Recession.
Meanwhile, our major market indicators do not provide very good news and are still bearish. Our liquidity indicator shows an outflow of over $18 billion with no help in sight from stock buybacks. Our earnings-per-share momentum indicator is negative, and we're expecting a negative 6% EPS growth this quarter, which will be the worst in six years. Our technical indicators bottom line show a tape from hell. Every major index has broken down. Our valuation indicators are moderate as the market is down from overvalued slightly to fair value at this time. Finally, our Fed indicator is neutral after the rate hike, and our adjusted money supply stimulus indicator is now on par with current GDP growth, showing a neutral Fed. Also, the yield curve appears to be flattening, which indicates a recession alert. We recommend investors be very cautious and, when possible, selectively sell into the rallies.
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