Monday, February 1, 2016

Taking the Bull's Best Shot

 Last week, the bears took a beating on the news front.  First, it was Facebook ripping on an earnings beat, and then the big one, OPEC and Russia production cut rumors.  And last, but not least, the BOJ NIRP announcement.  That would make any half hearted bear run for cover and wait to see if they can reshort at a higher price or just step aside to avoid a possible V spike to the heart, like they probably experienced in 2009 to 2015.  Trust me, I have been V spiked in the heart more times than I can remember being short.  Fortunately, I am still alive to trade, but they were painful AND common.

There is a change in market tone that you can just feel.  Not everyone tries to develop that feel, but it is something that I work on so I can be more in tune with market movements.  It is not based on charts.   It is based on how long the market stays at a lower price zone, and how long its stays at a higher price zone.  The frequency of dips, and the news of the day.  The market is still going up on positive central bank news, but the effect seems more fleeting, and doesn't last long.  After all, the base case is for the central banks to provide plenty of liquidity, and the high stock and govt bond market valuations attest to that.  Also, you are seeing fewer V bottoms that last.  What I mean by this is that when you had V bottoms in 2009-2015, they would propel the market higher for several straight days, and not retrace until several weeks later.  That was a show of extreme strength.  You are not seeing that much anymore.

Now that prices are back up towards levels where you have plenty of room down to the previous lows, you have a good risk/reward short setup in a strong downtrend with fundamentals that haven't changed.  If the Fed came out more market friendly with a no more hikes this year call, then I would be more worried on the short side.  But the Fed is worried about their credibility, and thankfully, Yellen is not a Bernanke who prints money anytime the market goes down.

I got short both crude and S&P on Friday.  Current downside targets are last week's lows of 29.00 on crude and S&P 1860.


Anonymous said...

Wrong again. Right on crude though, but that is a easier trade.

Will the Yuan go down despite China's FX reserves and threats at squashing short sellers including Soros?

Market Owl said...

Let's not jump the gun. Still a lot of trading left this week. Could care less about the yuan.