Monday, January 4, 2016

In August-September Mode

They don't make it easy.  Once you get adjusted to one volatility regime and choppy market, they change the game on you.  I may be like all the other dummies who are getting bearish but I cannot ignore a market that gaps down over 30 SPX points AFTER a closing hour plunge on the last day of 2015, and treat it as same old, same old.  The VIX has been providing the warning signs over the past few days of 2015, when the VIX was stubbornly high considering the SPX level.

I am going to be careful buying dips till we reach a lower more fear inducing level.  That is probably somewhere in the S&P 1800 to 1900 range.  Honestly, like most people know, the US market is overvalued here and it is vulnerable to deep selloffs just like August and September.

What is especially worrying is that oil is actually up on the day but the equities are ignoring that and going down huge anyway.  It looks like we are on the edge of another precipice just like August even as there are a lot of bears around.  You have to always consider the market environment when considering sentiment.  If it is a bearish market environment, then it takes a lot of bearish sentiment before you can hit a firm bottom.  Remember that in 2008, investors were bearish almost all year long, and the market kept going down.  Same with 2002.  People have gotten so used to a bullish market environment over the years that this new bearish environment is a bit of a shock to the system.  I think a bearish market that sustains weakness will really surprise people the most.  It is almost taken for granted now that any deep selloffs are quickly erased with V bottoms.  I think that changes this year.

Right now, I don't have a high conviction trade because although I do believe now that we will be entering a weaker market for the coming year, so do many others on the Street.  It is a time to be careful, not only for longs, but for shorts as well.

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