Sunday, February 19, 2017

Public Believing in the BS of Teflon Market Will Be Big Buyers of Stocks Soon

The Teflon market continues to rally but few understand why. The majority incorrectly believes politics and/or Trump is driving the trend. This largely domestic perspective, however, ignores the reality of the global economy and capital flows. Money is flying out of Europe, but few give a damn as long as US stocks keep moving higher.

A rally based on flight of capital, while extremely profitable, won't last forever. Soon the public, the bagholders of trend transition and believers of headline BS, will enter the stock market. They're entry will likely push stocks to levels that exceed even the most seasoned investors' expectations. History warns us that trees don't grow to the sky. US stocks will be vulnerable when trend concentrations push well beyond normal cyclical extremes. The majority will still believe in the Teflon market when that happens. Followers of the Matrix won't.

One of the most bearish rallies of all time, lead by massive energy surges in the Nasdaq 100 and Dow Industrials (fact not opinion), continues to push US stocks to new all-time highs against the pessimism of the majority (chart 1 and 2). While this combination (new highs and shockingly high pessimism) is extremely bullish, it's being largely ignored by majority, a group badly scarred by the memories of the 2007-2009 market. This is a market driven by international capital flows and professional buying. The rest are too busy focusing on fear rather than the message of the market.

Chart 1: Nasdaq 100 REV(E)

Chart 2: Dow Industrials REV(E)

Headline: The 'Teflon market': Why stocks keep setting new highs despite Trump drama

After all the Michael Flynn scandals and overturned executive orders and middle-of-the-night disruptive tweets, Wall Street believes one thing above all — that the Trump administration will survive and the U.S. economy will thrive.

There's pretty much no other way to account for the way financial markets have managed to ignore the tumult in Washington and continue to reach new record highs.



Market-driven money flow, trend, and intermarket analysis is provided by an Insights key.