On the backdrop of Fed's third consecutive rate cuts and progress of US-China trade deals, stocks are at all time high. Now the question is when FED will officially cut the rate and set their tune of no more rate cut unless economy dives, what will happen. Yes, you guessed it correct. The sell off. Therefore, smart money is buying on all these rumors and waiting for the dump when the news will finally arrive.
Why?
Because, we are at the peak positive news cycle: ISIS leader killed, Brexit hard exit averted, FED is cutting rate with 94% certainty, China and US is inking first phase of the deal, FED started QE through flooding Repo market. Trade volumes is slow.
What could not be the best time for stocks to see the all time highs?
What next? A 2-5% correction.
Because economy is slowing down. US economy is prospected to grow 1.6% on previous estimation of 2% in Q3. China's lowest GDP growth in last 27 years and inverse yield curve is in everybody's mind. Global growth is swinging down.
Large number of big corporation missed the earning estimate: Amazon, Twitter, Cisco. There is a good chance Facebook, Google can miss too.
There are lots of negative economic bad reports on the horizon. US Manufacturing survey report comes out worst in decades. Germany and Japan is slowing down in GDP growth even with negative rates.
Moreover, retail traders are in the sidelines. Mostly banks are running out of cash. Therefore, FED is flooding the REPO market with cash so that Bank do not sell their stocks. It looks like market's euphoria is based on extreme support.
Once, a card will fall, it could be FED's hawkishness, a bad job report, a economic data shows tremendous fall, then stocks will be sold off. Some expect that sell off will be severe since there is no volume to catch them. It can be falling knife that nobody want to catch.
It is always sunshine before darkness arrives. Buy the rumor, sell the news. If you bought during US-China trade wars when SPX500 was around 2850's, it is great time to take your profit.
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Thanks for reading.
@dtrade
Cryptominer , occasional trader and tech blogger since 2013