The S&P 500 index is still stuck in a wedge pattern and investors don’t look to be too committed to the up or downside direction of the market.
As a result the S&P 500 has basically made no progress in over four months. This, despite the stregthing in small cap stocks – which usually indicates that investors are feeling less risk adverse.
However, the rise in small caps may not be coming from new money, but from the rotation out of tech names:
What I find interesting is the Fed has indicated that any rate tightening will be pushed back. This is usually a strong positive for the market.
Perhaps the market has finally become margined out.
One of my biggest worries about the current market is the large amount of leverage being used. Historically, high levels of margin have beeen an indication of a market top.
The rise of investor margin debt looks to be closely correlated with “Fed speak” since early last year. To me, the sideways pattern is a strong indication that leveraged investors are worried about when the Fed will act and how it will impact borrowing rates and liquidity.
Keep an eye on margin levels when the S&P 500 Index finally breaks out of its wedge pattern. I bet the two will be closely correlated.
Feel free to leave a comment below or you can reach out to me privately here.
CEO & Chief Investment Officer