Bullish signals from equities and gold raise confusion

THE market comprises countervailing forces. Most commonly it reflects a struggle between bulls and bears, optimists versus pessimists. One outlook typically dominates for extended periods, and confusion ensues at the point of change from one trend to another.

This year seems to lack clarity, with equally strong calls from bulls and bears. The chances of a US recession have dwindled, according to some. But others believe the US economy is overheating and more interest rate rises are needed. These calls are amplified by social media, and then amplified again as they are repeated in the echo chamber of mainstream media.

Investors, dragged from one extreme view to another, end up in a state of confusion. The danger is that investors may become wedded to one particular view, and they interpret all new information in light of that view. The bulls will see every pullback as an opportunity to get into a rising trend cheaply. The bears see every rally as the end of the uptrend and an opportunity to go short.