May 10 Highs are in Focus

Most of the indices that we follow made their highs on May 10, 2021. This week we have seen players attempt at taking out those highs, but so far these levels stand as the high water mark. As such we remain of the view that the stock market is rolling over and comments over the past couple of months since this period started on February 24, 2021 hold.

The Equation...Five Numbers...

First Number – As I keep saying, there is no question that the real economy, the Main Street Economy, is still in improvement mode and will take on the eventual infrastructure buildout.

Second Number – On the other hand, the Speculative Economy, is trying to deal with the fact that it got way ahead of itself and is priced at almost double the best that the real economy will be able to produce.

Third Number and Fourth Numbers – And the two big numbers, the 1) FED stimulus direction and 2) Taper Timing are total unknowns.

Fifth Number – Inflation or Deflation, again unknowns.

And here is the chart that illustrates the UNKNOWNS..

This chart, updated today, shows the S&P price divided by the 10 year interest rates for October 2020 to date, the period that has seen the election/infrastructure anticipation picture. During this time both the S&P and the ten year interest rate have risen, interest rates more than the S&P. Then comes the date February 24, 2020, where the market players decided that the S&P index was going to ignore interest rates, and go higher by itself. So far that play has failed and may not happen at all because the inflection point may have been hit, the point from here, the next move may be where we see these two split apart, for sure not going the same direction. May 10 was the last attempt where stocks tried to break loose and go higher, that failed, now I would not be surprised to see stocks break down over the coming weeks.