As mentioned earlier today, I do not like the way the market has been advancing as of late. We are seeing many of these gap up and run days indicating emotional type buying. Also, I'm noticing more that we are seeing weakness/flat action in the final hour of trading which is where the "smart money" acts. Combine this market action with some of the other bearish signs I've noted already makes me believe that this new high today in the market will prove to be a bull trap. As I mentioned before though, bearish omens in a bull market don't have as much bite and can be resisted (i.e. ignored) or take a lot more time to show results compared to bullish omens. The same line of thinking goes with bullish omens in a bear market. Therefore if you try to play such counter trend trades you better 1) keep it small and know your uncle point and 2) have patience.
What I do like about the market action is that bonds have been acting a lot better. If equities pull back in the coming days with bonds strengthen further, the market would be in a much better position, in my view, of launching a sustainable move higher. I will not be chasing the market on the long side right here even though I respect that it made a new 52 week high.
It's usually the case that the most tempting set ups in bull markets are shorts and the most tempting sets ups in bear markets are longs...am I right? This is because it's easy to get caught up in the "the market has gone too far too fast in 1 direction" game. This is probably the most popular way people lose money in the market. And I can tell you from my personal experience, my biggest losing trades back in the day have been a result of playing this game. This is why if you insist on playing a counter trend trade you better keep it small and either a) don't commit all your intended capital on 1 entry point or b) have an uncle point and stick with it.
I also think a lot of people try to pick tops in a bull market and bottoms in a bear market because of ego....they want to be able to proudly proclaim "I shorted at the top" or "I bought at the bottom". Fuck ego. All through out the spring and summer I was making note of the legions of retail investors trying to bottom pick what I called the troika of death FAZ,SRS and SKF. I have no doubt in my mind a massive amount of retail investors got their accounts wiped out or severely crippled as a result of this. Some people were able to come to senses in time before it was too late but most it seems have remained bitter, resentful and cynical towards the market.
Get over it people. If you got your ass kicked this year shorting the market don't blame GS, the fed, or anyone else. Look in the mirror and yell at that guy. It's always that guy. You think the market is rigged to only go up? Why the fuck then don't you go long and make, which according to this thesis, risk free money? But you don't because you are biased, you are bitter and you want "revenge". In the end you will be an eternal loser of this game if you think that way and so many people I see out there think this way.
Right now I'm underwater a partial position in ABX puts and if I end up swallowing the loss on this one you won't see me cry about it and blame someone else. Losers do that and I don't want to be known as one.
Today I dumped one of my 4 longs. It was dragging ass not performing to my expectations and I don't want to be caught with it if the markets roll over here. The other long positions I hold right now have had for the most part, low correlation with the market but again, I know this can change if we were to see a major pullback.
I'm obviously not happy to be underwater the ABX puts but given that I'm effectively short the gold sector at a time when it is strenuously overbought I'm kind of "protected" in a way from the sector exploding a lot higher from here without a pullback. In addition, I still have another bullet or 2 to fire given that I only committed 50% of the capital I had in mind for the trade.
Bottom line: The new high in the market today looks to me to be bull trap in the making. Bears may not get instant gratification but I suspect before the end of the month is over 1070 will be seen.
I think they market probably will pull back below the 1100 in the coming days to shake some people out. Bears/Media will start talking about 1100 not being able to hold as a crucial support therefore could see further weakness. And if you get Meredith Whitney on CNBC a few more times it mights just happen.
ReplyDeleteThe 1070 areas seems like a reasonable place to get tested again with prior resistances and 50MA ascending before market decides where it wants to go from there.
Ya I saw that interview with Meredith. Here's the rub...a lot of what these bears say might actually come to fruition...but not when they expect it to just like when bears warned about housing in 2004-2005. When the investment community drops their guards and stops worrying about a double dip, CRE meltdown, or what have you....that's when the next bear market will likely come. So long as everyone keeps looking over their shoulder, ducking for cover anytime the market drops 2-3% this bull market will carry on.
ReplyDeleteBut it's good to see what both sides of the market think to get a balanced perpsective and as I've mentioned with my last few posts the market is giving off bearish vibes here so let's see how this plays out.