Fresh all time high and still no respect by the herd

Better than expected payrolls and significantly revised March payrolls caught everyone flat footed Friday morning. Given the trend in the disappointing economic data as of late, nobody expected that 165 K print or last month's upward revision. It looks like my protective put purchases on Thursday are going to indeed turn out to be a sacrifice to the trading gods...and I don't have a problem with that at all! Any of you who have been bullishly positioned should thank me!

With the market at a fresh all time high do you think it's changed the ingrained miserable SOB herd mentality out there that have dismissed this bull market from day one? Not one bit. I still keep seeing the same "blow off top!" "It's rigged by the Fed",  type comments which have been ongoing for over 3 years. So pathetic, so delusional. Keep reading articles from zerohedge doomers...it's done you really good I'm sure. Keep following Roubini, Schiff, Hussman and the rest of the miserable permabear SOBs who have been utterly humiliated by the market for 4 years and yet continue to display arrogance without giving any mea culpa for being as horribly wrong as they have been. Unbelievable these guys are. I for one don't feel sorry for anyone of their devotees. And as I said before, it doesn't matter if the market were to make a bull market peak shortly and descend into a new bear...these jokers have been wrong for far too long and the market has gone up far too high for them to have any credibility as far as I'm concerned.

Tough to say where the market goes in the ST at this point. The rule of thumb is that when a market breaks out to an all time high it's a powerful signal and more ST gains are likely but there obviously has to be a limit to this and given that the market is already overbought, it doesn't seem likely the market will be able to advance a lot further without some sort of consolidation first. I've outlined some factors that support both the bull and bear case in the ST. One thing's for sure though is this...you must respect a market that is making a new high or low and more often then not you get ran over if you try and step in front of it betting the other way. Just look at what happened when I bought those puts last week! 

Two weeks ago I posted that global leading indicator chart which suggests that the data is going to start looking a lot better in the immanent future. Is this why the market has been able to ignore any bad news? We are certainly going to find out! This should be an interesting summer. Given my partially hedged position, I can sit back and watch the show with less anxiety. And have you noticed that sovereign yields in PIGS have collapsed to multi year lows? That's the complete opposite of what happened in the springs of 2010, 2011, 2012 when yields were creeping higher until they blew out to "crisis" levels which helped trigger the major spring/summer corrections. 

I also want to say something about Doug Kass. This guy has gotta be an ego maniac.  He's short Buffett's Berkshire and was invited to Buffet's annual shareholder meeting to challenge Buffet with some bearish questions. Out of all the stocks to short, Kass chooses Berkshire. Jesus. I think he's trying to pick a top on Buffet rather than the stock itself. I remember reading an article by Kass a few years back claiming Buffett has lost his touch. Well Kass, it's YOU who has lost your touch. Buffett proved you wrong then and  (so far) again this year. I'm not sure at what price Kass is short, but whatever it is, he's underwater as the stock made an all time high Friday. From my knowledge, Kass has been mostly short the market since the year began as well and so before being critical of others, especially legends like Buffett he should be more critical of himself.  

Getting it out of my system

Alright I did it. I bought some index puts to hedge my portfolio. There...fuck off now George Costanza. For now it's a rather small hedge making up  2% of my account value. They may very well end up being a sacrifice to the trading gods because I have to admit there's a bit of paranoia in this trade.

I bought some Aug SPY 155 puts and did so in the first 15 minutes of the trading day which means I got subsequently ran over, but it's all good. I have to treat this position as portfolio insurance, not as an individual position. I have to admit, I have a hard time doing this because I have rarely used hedges in the past 4 years. I have opted instead to raise cash if I had general market concerns but I don't wish to do so this time because the stocks I own (only 2 of them) are still quite cheap and have been able to trade fairly independently of the market. Why then buy index puts if the stocks I own have been able to trade on their own accord? Because you never know. That's the reason you get any type of insurance. If the market was to have a deep correction it's not hard to imagine my non-market correlated stocks will eventually get sucked into the market downdraft.

I pulled the trigger today for a few reasons. First, I can't deny that the economic data has for the most part,   been weaker than expected. The market has been able to shrug it off for a month now which could suggest it  believes the weakness is only temporary. It's also possible that the market is wrong (yes wrong) and has been able to ignore the bad news because of the strong upward momentum fueled by stubborn top picking. If that's the case, it's just a matter of time before it will acknowledge reality. We saw this behavior in the past few springs whereby there were flare ups in Europe and other bad news but the market ignored it and kept chugging along untill it eventually couldn't ignore the bad news any longer. So, we will only know in hindsight whether the market is correct or not in ignoring the bad news. Given the strong run up we've had YTD and given my long exposure, having at least a small index hedge makes prudence sense at this point while we see which fork in the road Mr Market will take. Another thing that prompted me to pull the trigger was that NAAIM spiked to 80% longs and Rydex traders bought Wedneday's dip which is something they don't do often and the fact that these wrong way traders got away with it makes likely that Thursday's rally will get completely undone and then some in the near future. AAII sentiment is only at 1:1 bulls/vs bears which is still supportive for the market rally and bonds are still strong and so it's certainty not a slam dunk for the bear case in the ST/IT. In fact, we could easily power higher still given the condition of these 2 indicators.

The bottom line is that I no longer feel comfortable with an unprotected 80% long position while we enter a seasonally weak period with the market overbought while the economic data has been deteriorating. While a 2% hedge is not much, the puts have quite a bit of leverage and I may be inclined to add more. I still don't believe that any market weakness we will see is going to be severe given the bullish points I made in my previous post. In, fact I  think there's a pretty good chance we will only have a mild 3-4% dip this summer, but given my situation, I don't want to risk being wrong while unprotected.

I've said this before a few times - know yourself. If you know you'll be weak if the market moves against you, you have to either reduce exposure or hedge otherwise you'll end up making an emotional trade.