Markets Continue to Hover at High Levels After Mixed Trading, but a Drop-Off Seems Inevitable

The equity indexes closed mixed once again on Wednesday as the Dow Jones Industrial Average dropped 36 points with the S&P 500 rose 1.6 points.  The Nasdaq gained 8.2 points and the Russell 2000 closed lower by 2.3 points.

The S&P 500 volume traded just over 50 million shares.  Its volume on a daily time frame for the first two months in 2016 was three to four times the volume traded by the index in 2017.

Everyone wants to know why the CBOE Market Volatility Index is near an all-time low.  That is because complacency is near an all-time high. Does anyone believe that it is different this time and that the bull market will not end?

There are two things that stand out in this global, interconnected marketplace, but are being overlooked or understated.

The first is that China's foreign currency reserves have fallen below $3 trillion, the lowest level since 2011. There is a tremendous capital flight out of China, and at this rate, China could very well be broke by the end of 2017.  We have seen this before with countries, notably Brazil and Argentina. There is only one way out of this situation for China, and that is a massive de-valuation of their currency, the yuan.

That would send shock waves around the global markets, including the U.S.

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