I haven't done anything today. I was tempted to short that bounce at 10am after the housing data was released but it wasn't a big enough bounce and it fizzled too quickly. No worries though. I have no problem doing nothing. Often times the best trade is no trade. I find when I start forcing trades out of boredom or greed I typically regret it. I have gone weeks whereby I make no trades. Patience is one of my best strengths when entering a trade. I will wait as long as it takes to get the premium setups. Unlike in poker, you don't have to feel pressured to play a weak hand because of blinds going up. My biggest weakness however, is exiting trades. I often pull the trigger on a winning trade too soon but I'm pretty good at cutting lose a bad trade early too.
It seems to me that the breakout in the market has questioned the conviction of whatever permabears are remaining....at least the ones I have followed. A lot of these same bears who were pressing shorts going for the kill on the H&S pattern are now licking their wounds calling for 1000-1050 as the next place to put on shorts again....some even have higher targets. This may strike you are a contrarian sign that the market is set to go down now because so many bears have finally given up....it is, but it also isn't.
For the short/intermediate term, this capitulation is indeed indicative of an immanent top...my best guess would be that it happens after GDP numbers are released on Friday. It could happen sooner obviously but my best guess is that the market chops around from now until Friday.
But longer term, it seems still evident to me that there is plenty of skeptics in the market. The permabears think that once this rally is over we will collapse back to the lows in no time. Their conviction level is so high regarding this which to me shows that they haven't truly given the upside action we've seen since March any respect. The average retail fast money trader is still bearishly biased from what I see. I notice many of them quote articles from zerohedge.com and other bearish sources. The group think mentality that exists with them is uncanny. From the financial media and pundits in general, there has been a rise in bullishness but it's been only cautiously guarded optimism if you ask me. The average Wall Street firm SPX year end target is 1007 which is only a stone's throw away.
The general consensus in the financial community appears to be as follows:
1. The economy may have bottomed but expect a below average recovery (early last year the consensus was that any recession would be mild and contained within the housing sector).
2. The risk of a double dip recession is significant.
3. The risk of run away inflation is significant.
4. Commercial real estate is the next shoe to drop.
5. We are in a "new normal" economy which will be characterized by below average growth for years due to de-leveraging (this one sounds like the opposite of the "new era" view of the late 1990's doesn't it?)
So, if you are bearish on stocks longer term i.e. 1-3 years, you will need to see negative surprises to the above consensus thinking to be proved right. With expectations this low, to me the surprises seem to be more likely on the upside rather than the downside. Keep in mind this is a longer term perspective. The shorter term is not as favorable given the consensus notion that SPX 1000-1050 is a lock.
2nd quarter GDP released on Friday is expected to be around negative 1%. If we get a positive number I think we could see some sort of ST or IT blow-off move to the upside and perhaps even a revision on consensus long term expectations. This would be the equivalent to March 2008 when the bear market started to get serious acknowledgment from the public as fundamentals showed serious deterioration. After that point however markets staged a very sharp 1.5 month counter trend rally to shake out the Johnny-come-lately bears. We could see the same type of behavior but this time on the bull side....stay tuned.
As a hedge clause, you should know that I can and will often change my outlook as new information presents itself...for anyone who gives a rat's ass (probably nobody). I'm not a dedicated bear or bull....one marriage is enough for me.
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