Tuesday, March 29, 2016

Scared to Go Long

Although I have been predicting higher prices in the coming weeks, I am reluctant to act on that with any conviction.  I am looking beyond the next few weeks, and picturing a market that will likely resume a downtrend after equities consolidate.  I am looking for a bullish consolidation, meaning that we should get higher highs and higher lows for the next few weeks.

But I don't want to play that because the upside should be limited, maybe up to 2100 at most, and since we're already at 2055, that's 45 points of upside, at most, and a reasonable downside potential down to 1940.  That is 115 points from here.  Although the odds are probably much higher that we go up 25 points before we go down 25 points, I don't want to risk being caught long with a big gap down while I am trying to squeeze out the last 25 points of this up move, while risking a potential big selloff out of the blue, like we have seen before, such as that Aug 2015 opex week, or that first week of January.

Janet Yellen rammed the shorts today AGAIN.  I will never understand what shorts are thinking when hoping for a selloff on the Fed expecting a hawkish tone.  That is not going to happen unless you get a stock market bubble.  That's right.  A bubble.  The only thing that will get the Fed to act hawkish is a bubble.  And we are so far away from that right now that you don't need to worry about the Fed taking away the punch bowl.  They will not hike this year unless the S&P breaks out above 2100 and stays there until their September meeting.  I give that about a 10% chance of happening.  So you have about a 90% chance of the Fed doing nothing or possibly cutting rates/doing QE again.  I like those odds (mine of course) when I am betting on bonds.

This year reminds me a lot of 2012 and 2014 in the bond market.  You got a lot of weak hands out of the bond market last year with all the rate hike/normalization fears.  Same bond market fears happened in 2011 (when oil was going parabolic) and 2013 (tapering).  The blood of last year's bond holders is feeding the move higher this year.  Expect new all time lows in 10 year yields before this "equity correction/bear market" is over.

I am not long bonds here, but I am waiting for the last gasp rally in the S&P to around 2080 which should give us a little pullback in bonds, which I will use to enter a long term position.  Right now, there is just too much froth from Yellen spewing dovishness for there to be much bond upside from current levels short term.

As for stocks:  too scared to go long, too smart to go short.


Anonymous said...

Big overemphasis on the "too smart" part.


Anonymous said...

Ah you published it. You must have some fucking balls. Let's see if they turn to baby nuts.. LOL

Market Owl said...

I now know why over 90% of traders lose money. I see it every day on CNBC and now here. So many people who don't get the point.