Wednesday, November 5, 2014

Another Good News Gap Up and Fade

That is two in a row.  Good news in the form of Republican takeover of the Senate, in the midterm elections, after the BOJ QE Blast from the Past on Friday.  Gap up, and crap down in the morning.  Seems like we've saturated the fast money buy drive into the S&P, and we'll need to settle down and trade sideways for a couple of weeks.

These good news events are quickly changing investor sentiment from bearish to neutral to very bullish.  Usually you need a fair amount of time to change investor sentiment, but the lessons from the past 2 years is those that wait to feel comfortable have been buying near short term tops, not in the middle of the move.  So everyone knows the game plan now.  After the V bottom, buy before the other fool does, and sell it to him a few weeks later when he feels comfortable buying.

So you are getting these rapid changes in investor sentiment and positioning happening over 2 weeks instead of 4 weeks.  That makes it trickier planning the future market direction.  It makes past historical price action less useful as a guide for future moves.   It is almost like we are on overdrive, moving in one week what normally would take two weeks to happen.  I don't know if that means we reach a top sooner, or if we chop away in a range near the top for longer than usual.  Either case, the top for this bull run is on the clock.  I give this market 6 months, at the most, of further upside, and there will be hell to pay for TINA and other viral, but misconceived notions out there, on the other side of the hill.  There is no growth to back it up.  It is just all the equity allocations worldwide going towards US equities, because they are the most loved and trusted.  This can go on for a while, but you will reach a breaking point when investors finally realize that it is risky to pay such high prices for equities when there is no global growth.

Ok, that being said, I expect the S&P to keep grinding higher for the next 3 months, LOL.  My short-term view and long-term view are not the same.  But I will not play the S&P bubble on the long side, except for very short term trades, even though I expect it to go higher.  And I have given up on the short side ages ago.


Anonymous said...

Any view on the volatility in gold and oil?

Market Owl said...

Seasonally oil is very weak in November and December, so even though I believe that oil is close to a bottom price wise, I don't expect much of a bounce till we get into January. I am bearish on gold.