In our last note we felt that the minor selling that had materialised could have been the start of another minor leg lower, so this is the first time in the past couple of months that we have got the sentiment wrong.
As the index has actually managed to reverse course quite quickly and moved back to post fresh all time highs in recent days. So that is the good news for the bulls. The bad news is that rather than being entirely wrong we may have just been a little premature.
As now the market again does look vulnerable to some profit taking. Some more bearish macroeconomic notes have come out of Wall Street in recent days highlighting how the recession, long heralded by the inverted yield curve, may finally be showing some signs of emerging. As the US economy does start to show some early signs of slowing.
Can the Fed cool the economy enough to tame inflation while avoiding a harder landing? So far the market has priced in a very positive yes to this question. As any doubts emerge on this view however there is considerable space for downside moves.
To be clear we are not calling the top of the market here, but what we are suggesting is that some chinks in the armour to the soft landing argument have gathered pace in recent days, and while consumer sentiment is strong there are signs that suggest that this is late stage buying interest and that some early institutional investors in this bull run have already been taking profits.
We do feel it is warranted therefore to flag up that there is the potential for this profit taking selling to gather pace, which could drop the market back into the previous channel in the coming days. Leaving a more cautious take profit stance for the week ahead.