I was away the whole day due to wedding planning....I can't wait until this shit is over and done with. I'm also being distracted by my CFA studies...level 3 exam in June. Anyhow, this could be the breakout I expected, but i think we could see the market cool off in the early going tommorow. After that, I don't know...will have to see how things are going. I also think the VIX will hit 30 before this rally is done. Prior to this debacle a VIX of 35 indicated extreme short term pessimism and the rallies that followed didn't end until the VIX hit about 20. I don't think we'll hit 20 just yet but 30 is doable and I'll show why with a chart in another post.
As I suspected, this rally has been fueled by a lot of wrong way traders in the market. It appears as if practically every short term trader was caught short in early March. Check out this except from an article I just read
"The recent market rally that started on March 10th has been dramatic, unexpected, and actually quite painful for the vast majority of quantitative equity managers. Based on our conversations with numerous managers in recent weeks, we believe that most quantitative managers’ portfolios were not positioned in expectation of a rally. Of the nearly 80 managers we have talked to, only one manager said they were up since March 9th and the clear majority admitted to being notably down or stopped out on their positions."
We may be seeing a lot of quant fund blow ups right now. Apparently a lot of these types of funds cleaned up during the crash....what goes around comes around.
There are clearly more "greenshoots" in the economy if you want to call less bad a greenshoot. Wednesday for example showed that the housing market may have bottomed. The national association of homebuilders has what they call a housing market index which measures homebuilder's sentiment. It's been pretty reliable in calling turns over the years. As you can see here it has shown the first substantial uptick since the housing crash started.
This uptick is comming off extremely depressed readings. Yes...its only 1 uptick, yes....this could be just a one off....and yes the reading is still very low. But skeptics are missing the point about these "greenshoots". For first time since this crisis began we are seeing some improvements in the data as opposed to the relentless freefall we have been accustomed to. This is a major sea change. This gives people some legitimate reason to hope that things might get better as opposed to just blind faith. Sure, these greenshoots could just be noise as the economy simply grinds along the bottom or gets worse later on but when you are trapped in a pitch black room for 1 year, finding a flickering light is like wining the lottery. Combine this sense of relief with the lemming-like behavior of the trading community who have been shorting on every uptick getting stopped out again and again you get a relentless rally like this.
I see a lot of frustrated bears saying things like "this rally is bullshit!", "the PPT and Goldman Sachs is manipulating everything!". These are pathetic excuses from losers. Losers blame others for their failures. There's a saying that goes "the market does what's is supposed to do but not when". For example, clear cracks in subprime mortgages occured in March 2007 and after a drop in the stocks of companies like Fannie Mae, not only did they recover but they made new highs. Only about 6 months later did they start crashing. Timing is everything when it comes to making money in the market and if you plan on fighting the market because you think you are right and the market wrong, then you better be prepared to endure plenty of pain. Ask any bear who shorted tech in 1999 when the Nasdaq hit 2500 when clearly it was a bubble...that bubble doubled before crashing and most bears were wiped out before they had a chance to profit from the crash. I'm sure they said "this rally is bullshit!" "the PPT and Goldman Sachs is manipulating everything!"
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