Poising for a potent purge seemed predictable over the past week for a number of probable reasons. Foremost was the technical extension that gave our belief resistance was significant at June S&P 2700-2720.  

Also it was notable they were trying to provide leadership primarily from a group of tired worn-out overpriced stocks, that had assisted the delusion of a stronger market (on light volume), as was supported by strong Oil.  

The oil gains triggered a lot of short-covering (in oil stocks and in oil) in what I thought was an irony 'after' a nearly $30 / bbl jump in WTI over the past months during which we were bullish. It made no sense ahead of an OPEC Meeting, where it was clear the Russians were unhappy so were pressuring the Saudis to cooperate with higher Russian production.  

(Again you might relate it to their inaction when we attacked Syria's chemical facilities or even to President Trump reversing policy about new sanctions on Russia, even before conveying it to UN Ambassador Haley a bit of a brouhaha momentarily erupted over that slight oversight).  

Along the way we suggested oil was essentially fully-priced for now; with the $70 'cap' removed just to allow for geopolitically-related spikes, that in this case (at least so far) have not pushed oil over that level. My point of course was that we were bullish on dips for many months for oil and for oil stocks; and that worked great, while many fought the upward oil trend for ridiculous reasons that don't apply now (or yet); like alternative energy sources that do matter; but it will be years before they really hamper oil.  

I suspect at some point there will be less excessive oil exploration 'if' the economics really shift in the direction of alternative energy; and that may ironically reduce 'new' supply of Crude, holding the price up, not down. At the same time US shale oil drilling was assisted by Saudi keeping prices up a bit. While at the same time shale 'reserves' are likely lower than are recognized because 'flush' production depletes faster than the optimists were suggesting (or the drilling program funding packages are based on) and that also may constrict supply down the road.   

The other oversight so many made was with the excess technology price moves; not so much the 'story of the moment' about 'chip supply' or even of Apple. We discussed yesterday the Apple / ARMS / Taiwan Sem. new 7 nm chip production delay of a month, which is what that's about. That a slowing of sales exists is not really news, nor the 3rd Quarter slowing. In this regard it's the 4th Quarter that might again see 'slim' inventory in the top model using the new processor; due to the delay in 'Wafer' production dates and early quantities.  

However we don't dispute (mentioned it frequently while suggesting that one SELL some of their Apple holdings at or near historic recent highs) a slowing China market, identifying the 'cheap' and in some ways at least a bit more useful (not 'better') cellphone made by ZTE and others in China.  

More useful because Chinese and Indian customers often want a 'chat & payment App' that is NOT available on an Apple phone; plus 'dual SIMS' so that they have access to slower cellular services when in rural areas. All that was suppressing Apple's business in Asia before any 'trade concern'.  

(Our optimism on Apple was at 57 split-adjusted; no reason to have been chasing it or basically any of the tech and chip stocks this year; but to ring the cash-register instead on virtually all over the overpriced ones.)

Fundamentally this has been an expensive market for a long time; and so much of last year's projected gains from Trump's election (to the moon if he won we said; but in January said 'not interstellar space', when calling for a sharp break from an unsustainable parabolic upside extension).  

Along with the overpriced market led by tech (FANG +) and Oils (masking the distribution I humbly and rightly contended) you had rates starting one more time to sneak up, while pundits tried to argue lower rates based on a recession prospect (we don't disagree about some risks, even that for a 'stagflation' scenario); but somehow they thought that would levitate stock prices even more. Silly.  

This was not and is not the prior era of artificially-low rates that, with the Fed's very visible warning of monetary policy snugging-up. Very clearly l looked at what was going on (basically the money managers desiring the party to continue, even after the punch-bowl was removed..as they were reluctantly being pushed to the exits, but wanted to stick around for some sort of 'nightcap'). 

While we 'should' fear excessive debt and realize there is fragility, we do believe that gradual rate increases (if the trade and other backdrops will allow as the year evolves) reflect the perceived growth of our economy.  

That's a good thing; and also why I suggested not catastrophe but very proper declines by the stock market. You'll recall the idea for this year: that we blow off, smash, rebound into the spring; and work lower for at least a few reasons. AND that what's 'good for the economy at a point is not good for many stocks', for awhile. That's the credit market aspect. 

In sum,  they got it but many forgot to sell, and here you are with energy prices up (if pulling back momentarily); a bit of inflation; trade concerns; a restive Middle East; and a technical reversal just as outlined this week.  

You are setting up a near-term catharsis for the markets, whether it tends to unfold as a 'process' (as we've had so far since calling for peaking last January to precede a sharp 'flash crash' in February). We will probably in this case get a resolution to many problems before midterm elections (of course coincidental) but a lot can happen between now and then.  

Yes, retaliatory trade matters can dampen confidence, and a 'deal' with China, Russia, or North Korea (different issue) would be a palliative help for rebounds. But one can't count on that as of yet; hence all the forecast 'percentages' claimed as 'risk' even by those who are a bit concerned is also just a form of hand-holding, because they don't know if the favorable resolutions will occur quickly enough 'even if' they do, which is in the mutual interest of the trading partners.  

The bottom-line is this market would never have reached the higher levels for which we projected upside from early November 2016 into January 2018; absent expecting tax reforms as well as ongoing benefits to jobs and real growth in the USA; even with periods of pause.

To the extent business leaders are less confident, you have slippage in a slew of estimates. Hence our advance warning of mostly decent earnings but mixed guidance, since nobody knows how extensive not just 'revenue related to trade' will be. It brings 'capital expenditures' into question. In such an environment; the S&P warrants a lower forward P/E estimate. 

Our view has been for corrections to occur increasingly, rather than either euphoria or catastrophe, with an outside shot at a full-blown crash (which we'd buy enthusiastically once it settled-down after a 'trap-door' washout, and a possible 'institutional implosion').

Conclusion: 

All the issues are up in the air; the 'market will give us the message as to how low is low'. And while inflation and rates are firming, that's just telling us we're in a neutral zone for interest rates. That might of course not push the Fed as much, but there are other concerns too.  

In that regard, with 'revenue' (trade and CapEx and lack of infrastructure bills from Congress so far) a big question mark, it means valuations are still quite excessive. Price shifts are just starting and  market technicals have telegraphed these risks as outlined.  

Weekend (final) MarketCast

Midday (intraday overview) MarketCast