Finally, finally, the stock markets broke out to an all-time high last week.
After trying, and failing, for two years, traders finally got the print they were begging for, with the S&P 500 closing above 2015.
The world has too many people and not enough bonds. That is the undeniable conclusion of the recent market action. A surplus of humans means that wages can never rise fast enough to bring on true inflation. Hyper accelerating technology is exacerbating the trend.
So tidal waves of cash are flowing into disinflationary plays, primarily in fixed income, of which there never seem to be enough. The global ultra-low interest rates this has brought us suddenly made stocks look cheap. A 2.5% SPY dividend yield, versus 2.27% for a 30-year US Treasury bond?
New all-time highs thus became a done deal. Giving the bulls further confidence was the abundance of cross asset class confirmations.
As I expected, the Japanese yen ((NYSEARCA:FXY), (NYSEARCA:YCS)) tickled ¥100 briefly, and then plunged 4.1%. Ten-year Treasury bonds (NYSEARCA:TLT) also took a six-point respite. Junk bonds (NYSEARCA:JNK) held on to heady gains.
That great inflationary play, gold (NYSEARCA:GLD), took a much-needed breather.
But is this really the breakout that the pundits have been baying about? Or is it just the umpteenth head fake?
After all, trading for 2016 has been characterized by an endless series of false breakdowns, followed by false breakouts, relentlessly punishing traders and investors alike.
Blame the high frequency traders that received a huge fresh infusion of new capital at the beginning of this year. That gave them the juice to trigger a big round of stop losses on either side of recent trading ranges, every time.
I'm a firm believer that markets will do whatever they have to do to screw the most people, so I vote for the head fake.
The coming week may give us some clues.
On Monday at 10:00 AM EST, the National Association of Home Builders' New Housing Starts Index should bring us a continued reacceleration, thanks to the incredibly low interest rates brought to us by Brexit. Expect a report of 61 or higher.
We get a follow up on Tuesday at 8:30 AM EST with New Housing Starts, which should best the 1,170,000 consensus.
The trifecta of positive housing reports will get wrapped up by an explosive increase in Mortgage Banker Association's Mortgage Applications, with new refinancings as a major driver.
Needless to say, all of this upbeat housing data has a big multiplier effect on the rest of the economy.
The never to be missed Weekly Jobless Claims will be reported at 8:30 AM EST. We have been hovering at a near four-decade low of 254,000. However, you might expect a seasonal summer economic slowdown to bump those numbers back up a bit.
Friday brings us nothing exciting, except for the Baker-Hughes Rig Count at 1:00 PM EST, which has been trending up of late, putting pressure on oil prices.
If you were lulled into a false sense of complacency, expecting tedious summer doldrums to continue, and missed the move, you are not alone.
That would include me.
Virtually every hedge fund I know was caught either in cash, or net short. It is another nail in the hedge fund industry.
Personally, I wasn't expecting the new highs in stocks until August at the earliest, and the end of the year at the latest. Which means that we may get another chance to buy this market. The breakout certainly isn't based on any earnings revival that usually accompanies such a move.
So if we do get the 5% correction in stocks I am expecting in August, it will be time again to close your eyes, hold your breath, and "BUY".
I've Never Been One to Blow My Own Horn
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.