Be wary of investing in a rigged market

By Colin Twiggs
July 26, 2019 11:00 p.m. EDT (1:00 p.m. AEST)

First, please read the Disclaimer.

The S&P 500 recovered above 3000, suggesting another advance, but bearish divergence on Twiggs Money Flow warns of (secondary) selling pressure. Further tests of new support at 2950 are likely.

Falling commodity prices warn of declining global demand.

Declining crude prices reinforce the warning.

While in the US, the Cass Freight Index formed a lower peak. Follow-through below the previous trough would warn of a down-trend and declining activity.

Capital goods orders, adjusted for inflation, are declining.

Housing starts are steady but declining building permits warn of a slow-down ahead.

Craig Johnson of Piper Jaffray says odds of a recession are growing:

"The bond market has already priced in two rate cuts at this point in time, and potentially part of a third," Johnson said. "History has always said that bonds lead equities and we need to listen to that message. I think that's what the smart money is doing...I guess we can't seem to quite get off of the monetary train that we've gotten ourselves onto, and I don't think it's quite so simple."

Trailing price-earnings (PEmax) are above 20, historically a warning that the market is over-heated. The biggest buyers of stocks are the companies themselves, through buybacks. The Fed is expected to cut rates while employment growth is still strong. Price signals are being distorted.

Be wary of investing in a rigged market. It's a good time to be cautious.

"It is optimism that is the enemy of the rational buyer." ~ Warren Buffett

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Disclaimer

Colin Twiggs is director of The Patient Investor Pty Ltd, an Authorised Representative (no. 1256439) of MoneySherpa Pty Limited which holds Australian Financial Services Licence No. 451289.

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