My minimum upside target for the S&P 500 is still 3095, about 7.4% above these levels, and I am sticking with it. A corresponding rally in the Dow Industrials would leave them just shy of 28,000. Let me also mention that last week’s nasty selloff would have tripped a ‘mechanical’ buy signal (click on inset) if the S&Ps had fallen just a little farther. The rally targets are purely technical and go directly against my gut feeling that stocks are overdue for a major correction. As a rule, I trust my charts above all to give me an accurate read on the markets, especially since my instincts have occasionally been wrong at important turning points. In any event, I will be monitoring the charts especially closely in the weeks ahead because I believe the potential for a summer cascade is high.

Why? For one, extremely rich valuations are being awarded to companies with mounting problems. Facebook, for instance,  has become a pariah for the arrogance and condescension it has shown in dealing with privacy issues. Just last week, Chris Hughes, the co-founder of the company, called for breaking it up in a New York Times op-ed piece. Then there is Apple, which has been experiencing a sharp slowdown in iPhone sales but evidently believes it can offset this by jumping into a very crowded field of streaming-content providers. Boeing is enmeshed in a deepening scandal relating to the fatal collision of two 737 Max passenger jets.  And Uber, a company that is unlikely to turn a profit any time soon, went public last week with with a valuation of around $80 billion. If the courts rule that Uber (and Lyft) drivers are employees rather than independent contractors, investors can kiss their money goodbye, because shares in those companies will be headed into single digits.

The Trump Factor

But a far bigger risk to the markets is that a serious downturn could feed on itself to create a bottomless chasm.  This risk is always present, but it is greater now because the stakes are so high. A steep decline would raise the odds of recession and therefore diminish Trump’s chance for re-election. What a rude awakening that would be for Wall Street! Conservative pundits are all pointing to the very strong U.S. economy as the main reason why Democrats will be unable to win in 2020. This kind of talk smacks of hubris, since no one knows what the economy will look like six months, let alone in two years. It’s even conceivable we are entering a recession as I write these words. How can that be, you ask, with 3.2% growth just reported for Q1?  It turns out that most of the economic growth came from just two sources: expanded inventories and an increase in soybean exports. Q2 growth estimates from the Atlanta Fed have already been revised downward to 1.5%, and it wouldn’t take much of a negative shock to push that number below zero.

Any such downturn would set in motion a cascade of events that would catch giddy investors with their pants down.  The mere possibility of a Democratic sweep in 2020, even if it is a relative moderate, Joe Biden, who wins the White House, would be unsettling in the extreme for investors. A Bernie Sanders victory would be even worse — so bad, in fact, that we shouldn’t be surprised if the Dow were to shed 10,000 points or more, falling to 15,000 or even lower, to adequately discount the most dramatic change in America’s business climate since Big Government mushroomed under FDR in the 1930s.

Winds of War

Meanwhile, the threat of a major war hasn’t been higher, arguably, since the Archduke of Austria was assassinated in June 1914.  “The entire region between the Mediterranean Sea and India is a seething cauldron of threats, counter-threats, plots, conspiracies, economic sanctions and military movements,” notes the Asia Times. “At any moment an incident, misunderstanding or accident could cause the cauldron to boil over into open interstate war.” Click here to access the full article.

None of these things will necessarily come to pass. The economy could continue to muddle along or even accelerate, and the bull market could continue to hit new record-highs in its eleventh year. Although this is not what I expect, I will continue to weight my technicals indicators over gut feelings as always, and to trade with a bullish bias rather than bet haphazardly with put options on The Big One.