I've always been planning to move money into bonds after rates rise above 3% and had been targeting that move as 2019 because that is when the 10-year bonds the Federal Reserve has purchased begin maturing and won't be repurchased(1). Lack of demand for bonds will drive up interest rates offered to attract investors. (This simultaneously drives down the value of bonds issued at a lower rate.)
I didn't start considering that we might be close to the bull market top until I started hearing so many average joes talking about Bitcoin and other cryptoscams in November and December 2017. Bitcoin and the crytoscams are wacky stuff and the fact so many people are buying into them set off alarm bells for me. To be clear, Bitcoin is not a currency. Currencies don't move 10% in a day. It's a pyramid scheme. Maybe blockchain is a cool technology but that doesn't mean Bitcoin is worth a dime.
The stock market was on fire in 2017 and I completely missed it. I thought the instability in the White House would freak out markets, but it hasn't, yet. The healthy market turned parabolic because a very large number of people and institutions didn't sell stock in 2017, anticipating lower tax rates in 2018.
What we have now is a convergence of willing sellers due to the new tax year and the Bitcoin crash. What I didn't see adding fuel to the fire was collapse of a 3X volatility ETF. The use of volatility options and ETFs as portfolio protection is reminiscent of the portfolio insurance that contributed to the 1987 crash. Add on top of that rising interest rates (a good thing but destabilizing) and rising input costs lowering corporate profits after this quarter and we have more headwinds than we have faced since 2011 during the debt ceiling crisis.
We may have seen the high for the year, we may not have. The final report of the special counsel investigation and indictments could add political pressures to the market this spring and summer. Right now I have 50% cash in my portfolio and have a shopping list ready for the when the S&P 500 hits 2475, probably on Monday. Then I will be selling positions when we got back up to 2700 to test the 50-day moving average as resistance.
1. https://en.wikipedia.org/wiki/Quantitative_easing
This scenario seems to be playing out and stock market charts are starting to look like the year 2000 especially NASDAQ. The FANG stocks led the market up and will lead the market down. I'm watching for a retest of the 200-day moving average and sideways action into the summer, then markets likely head lower late summer or fall. Watch for 200 day moving average slope to turn downwards. #steeltariffs
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