Wednesday, August 6, 2014

Market Gets Interesting

We had a boring market for so long, we've finally woken up to some volatility, and there are opportunities again to trade short term moves.  It is now clear that we will have at least a 12-13 day selloff, which means we can go down till next Tuesday.  From there, I expect a bounce into opex Friday, August 15.  After that, it will be hard to tell.  If its an extended 22 day pullback, we could selloff for another week, or we could just continue to go higher off the bottom like last February.  We are destined to hit 1880 sometime next week.  The path is unsure, but trading action speaks of more weakness ahead.

Ukraine has always been there, its a convenient dead horse, you can beat it anytime and somehow it is considered rigorous market analysis.  What we have is a market that went up because of stock buybacks and asset allocations.  Now that you are seeing high yield bonds get hit, the endless money spigot for corporate borrowers is on borrowed time.  Less borrowing, less buybacks.  Also deals are getting pulled.  That's a removal of a positive catalyst.

I did go long overnight and it surprisingly gapped down today.  I will bailout on a morning rally and look to short that rally in the afternoon.


MM111 said...

Where do you think morning rally might take us?

Market Owl said...

I don't think we have much upside, perhaps we can get to ES 1918, which is the overnight high. There is tremendous resistance in the ES 1922-1925 area.

This is a weak market, better to short rallies than to buy dips. I was lucky to get out near break even, but the morning rally on a gap down after a weak day is pretty standard procedure.

Anonymous said...

I think your first scenario is playing out. QE is ending and Europe is weakening. Perfect.

Market Owl said...

The QE baton will be passed from Fed to ECB. But I don't think ECB's QE has near the firepower of the Fed's QE. Plus stock indices are very overvalued now, they weren't in 2012 when QE3 started.