In the 1989 drama Field of Dreams, the legendary Shoeless Joe Jackson (or ghost thereof) coaches a young Archie Graham who is at bat against an intimidating pro pitcher…

Shoeless Joe Jackson:
The first two were high and tight, so where do you think the next one’s gonna be?

Archie Graham:
Well, either low and away, or in my ear.

Shoeless Joe Jackson:
He’s not gonna wanna load the bases, so look low and away.

Archie Graham:

Shoeless Joe Jackson:
But watch out for in your ear.

The equity markets have staged a remarkable turnaround in as we close in on the end of the 1st of 12 innings of play in 2019. A quick chart of the Dow, SPX and NASDAQ all show that familiar “V Bottom” look both loved and hated by market participants.


Some investors had the wits scared out of them in Q4 of 2018, sending them to higher than normal cash levels. They likely missed out on some upside as the train which is the US Equity market left the station without them. Others who managed to stay the course, keeping the long term perspective in mind, might be a little nauseated from the roller coaster ride. Few others perhaps playing the dip perfectly seem to be timidly cheering the rally we have enjoyed this month.

None of them know what is in store when we return from commercial break and the top of the second inning begins as the calendar rolls over to Feb 1 tomorrow.

The signs are piling up that we have come too far too fast:

The VIX is quietly coming into levels which we have seen recent spikes…


Gold which generally is a flight to safety asset class, continues to trade in high positive correlation with the SPX:


Look what just happened in the percentage of stocks in the SPX above their 50 day moving average and what that often means in the near term:


Finally, let’s not forget what happened last February:


In sum, while we can chalk the first inning up to a win for the good guys, we need to take caution.

The first few weeks have been high and tight. So the next few could be low and away, or in your ear.

Watch out for in your ear.

Trent J. Smalley, CMT