Well, it turned out that the bearish extreme in sentiment finally resulted in upside traction. We've seen the market do a 12% boner move from the bottom. The put/call ratio has shown absurd skepticism in the face of this rally which no doubt has helped fuel this move. Yesterday in particular it closed at 1.41 which is what you typically see when the market has been getting slammed. If we close out the day near current levels the market will be fully ST overbought. In the past few months the market has not been able to handle ST ob conditions well....the tell tale sign of a bear market.
I'm pretty frustrated and frazzled right now. Am I too bearish? Am I being too inflexible and should be looking to play these ST moves? It's not what has given me my success and I know forcing trades will backfire but I think I need to start getting involved more with the ST. I know, I know, I said this before but never did anything.
The bearish sentiment is justified given what's happening in Europe and China. Professionals is embracing the bearish side but retail side is in the Happy-Go-Lucky mode. So I think many people are not bearish enough to be honest. Again I am not perma about anything and is always examining my blind spots. But purely just looking at the market actions, all these gap ups and triple digit intraday moves are not signs of a healthy market.
ReplyDeleteI wouldn't agree that retail is happy go lucky given the fund outflows we have been seeing and a general sense of disgust I'm sensing. Can it get worse? Sure...but I don't think they are in denial about what's going on. But yes, market action still indicates a broken market. It's been a long time since I've been so unsure as to where the fuck this market is heading in the intermediate term.... all these cross currents are making my crystal ball so hazy!
ReplyDeleteYesterday (Wednesday) I let go of my final chunk of isc.v into a nice pop which now puts me 95% cash. My bearish conviction is the point where I'm willing to sell longs into strength but not strong enough to go short (swing short).
Maybe I need to be more nimble and focus on the week to week moves instead of the big swings. That's been the way to go as of late but I know that's not to going to last forever and that in the long run that's a loser's game and playing the big swings is where big money is made.
Sooner or later there's going to be a big break up or down...I just don't have the conviction to bet on either direction.
Despite the roll over in fundamentals, you have to keep in the mind that earnings are still elevated and there has been no significant "proof" of a recession yet as far as earnings go and if earnings season turns out to be decent and some sort of progress is made in Europe, people might start to look at the market sell-off as an over reaction and justify buying for a 4th qtr rally which would probably be short lived but strong enough to wipe out more bears. I'm not predicting this will happen...just saying that it's plausible given that portfolio managers are very underweight equities as per the NAAIM. (it will be interesting to see what NAAIM exposure is this week). This is what makes me afraid to go short on a swing basis. In the ST though, the market is now quite overbought.
"Though this be madness, yet there is method in 't." In due time, the market will show you the way. Besides you are doing a very prudent thing here by being mostly in cash and sitting on your hands given all the cross currents. You've had a lot of success of doing what you've been doing for the last few years so I see no reason changing it up now.
ReplyDeletetrue that...right now this feels like an environment where you can get your nuts chopped off no matter what trade you make....I prefer to have my nuts in tact!
ReplyDeleteWhat a move! This market is kind of slowly earning my respect. The ominous U.S. dollar looks kind of broken too. Maybe the market is back to climbing that wall of worry mentality like it did for the last 2 years? I am hearing a lot of people missed this quick move and are afraid to buy now. Err that is usually what happen in an uptrend.
ReplyDeletestay tuned for my next post....lots on my mind
ReplyDelete