Market Analysis: The Most Important Chart in the Market

Is the global equity market in the midst of a mid-1990s style nirvana moment, where sub-5% pullbacks are all the “bears” get while it rockets higher to new valuation heights? With the global economy in synchronized growth mode, inflation low, and the US about to ignite a global corporate tax race to the bottom, it would not surprise me

But the problem is: it would not surprise ANYONE. 

Combine these elevated expectations with the recent market study flying around the inter-webs that the US equity market almost always rallies into year end after making a new high in September + the fact that the advance/decline line breadth indicator made a new relative strength high, and we have the ingredients for a serious correction that catches everyone offsides. 

But if a correction does not take place soon and we do in fact rally into YE, I believe Warren Buffett hinted at what precisely could drive the selling in 2018: tax reform-driven deferred selling.

Who knows exactly, but if in fact there is a significant deferred sales overhang – seems hard to believe given the disdain for Trump/Congress – that would explain the low volatility/low demand rally we have seen since this spring. SPX 50dma and 200dma breadth are representative of this dynamic:


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