According to investment strategist Jeff Bierman, a “black swan” is approaching the markets.
Bierman pointed to a positive correlation between five assets, which is a sign that the market is overbought.
“This is a dangerous situation,” Bierman said in a statement Thursday.
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The markets are facing a “black swan” and investors cannot escape it. In the stock market context, a “black swan” means the following: Experts are speculating about a sudden event that will have enormous consequences for the stock market. Because the rally in markets in 2023 has inflated a dangerous bubble, according to veteran technical analyst Jeff Bierman.
Bierman, senior market technician at Theotrade, pointed to troubling technical signals in the current market rally that suggest the uptrend in asset prices is about to come to an abrupt end.
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Five assets in particular — bitcoin, gold, oil, bonds, and S&P 500 stocks — move in parallel with one another, in what Bierman calls “automatic serial correlation.” In his opinion, this is an important bearish signal as it indicates overbought in several sectors.
At the same time, investors are underestimating the future risks to the market as the VIX-Index is 17. That’s the lowest reading the volatility barometer has recorded this year and a sign that traders are “sitting on a mountain of complacency,” Bierman warned.
“There is nowhere to hide, there is no diversification in this type of market. This is a black swan. It’s a bubble that could burst at any time by an exogenous, catastrophic risk event or any number of factors,” Bierman said in a statement Thursday.
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The warning comes with the shaky start to earnings season. While the big banks mostly beat estimates, other companies are reporting disappointing results. Bearish commentators believe earnings expectations are still overblown given the current storm of macro headwinds. That’s what Morgan Stanley’s top equity strategist says for the next few months worst earnings recession since 2008 ahead.
Also the Credit crunch in the wake of March banking turmoil does nothing to improve business and economic prospects.
“Brace yourself for a bout of volatility,” Bierman said of stocks this earnings season: “There’s so much downside if the market is actually disappointing or not disappointing.”
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