I want to warn you to be very VERY careful with stocks right now.
The common narrative is that the US is entering a golden age in its economy and that this growth will drive stocks ever higher.
The reality is that GDP growth has collapsed. The third quarter of last year (3Q16) was the quarter everyone thought signaled a new beginning with growth of 3.5%. However, the very next quarter’s growth (4Q16) collapsed to 1.9%.
And thus far this quarter 1Q17 is tracking at 1.8%
Put simply, growth is NOT coming soon if at all. Even Trump’s top economic advisor has admitted that GDP growth of 3% is unlikely until the end of 2018.
So what is causing stocks to rally so hard?
Well the truth is that that rally is being driven by just a few names. Currently, the number of S&P 500 companies trading above their 50-day moving averages is rolling over and falling.
However, the much larger concern is the daily market fixes that are occurring. These fixes are using a type of investment fund to game the market. And it is clear manipulation.
The funds are called “risk” parity funds. And they use the Volatility index or VIX as a buy or sell signal for stock purchases.
Put simply, if the VIX is rising, these funds pull out of stocks. If the VIX is falling, these funds buy stocks.
Here’s how the scam works.
Whenever stocks roll over, which should force the VIX to rise, someone slams the VIX lower. This FORCES risk parity funds to buy stocks, ramping the market higher.
I can tell you point blank that this scam is occurring numerous times throughout the day. I’ve literally watched these VIX slams take place to force the stock market higher on days in which stocks should be weakening and the VIX rising.
Why is this dangerous?
Because this is not REAL market buying being driven by investors who want to own stocks. This is automated buying being forced by manipulation.
The whole thing is VERY reminiscent of what took place in the build up to the 1987 crash.
While I’m not saying that we’ll have another 1987 Crash, I AM saying that stocks could crater 8% or more in a matter of days (or hours) similar to the 2010 Flash Crash.
So be VERY careful buying into the notion that this bull market rally is the real deal. It’s not. It’s market gaming being driven by manipulation. And there’s no need to chase it.
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Chief Market Strategist
Phoenix Capital Research