Tough Juncture

I have always been on the bearish side when it came to trading.  I guess it's because throughout my career, equities have usually been overvalued.  Yes, there was a brief time in late 2008, early 2009 when the markets were relatively cheap, but not dirt cheap.  Other than that, the markets were never undervalued, not even during the darkest hours of 2002 and 2003.  But now that we are approaching 1200, I see overvaluation in equities and bonds.  If someone forced me to invest money, I would buy commodities.  But even commodities will struggle when the markets go back to a downtrend, most likely next year.

Thus, the opportunity that I see brewing for next year is on the short side.  Right now, I am sure we will get a small selloff soon.  I just don't see that 15-20% whopper of a selloff anytime soon.  It could be a long year for those stubborn about shorting the market.

Before a change in a long trend, you have to see more back and forth trading, and we just haven't seen that yet.  In the top of 2000, there was quite a bit of choppiness from March to September, before the downtrend was well established.  In the top of 2007, there was that choppiness from June to December before the downtrend caught a head of steam.  Now I don't see a selloff of similar magnitude next time because I don't think we'll be able to go high enough to cause a big crash.  But I can picture a scenario where we get up to 1300, probably late this year, and chop around between 1200-1300 and then go down slowly in Chinese water torture fashion to 850 over a couple of years.

With these long persistent uptrends, the short side is hard to play because the selloffs are so shallow and fleeting.  But I think one is coming up soon.  The sentiment has got too one-sided.  However, until we get the choppy back and forth trading for several months, I won't be confident that we have topped out.  Till then, I will hit and run for a few percent here and there.  It is not worth it yet to take an intermediate term swing position.