Monday, September 12, 2016

Elevator Down

That was quick.  All that work put in above S&P 2120 gone up in smoke in 1 day.  And we have a chunky gap down from the cash close to add insult to injury.  There is clearly a LOT of players offsides who didn't expect this sudden swoon.   They are the impatient ones puking today, who chased the market higher, with FOMO on their minds.  They also didn't expect Draghi to be so nonchalant and complacent, thinking the markets are fine.  Well, the markets are fine because they expect him to always bring out the big guns.  When he doesn't, the markets aren't fine.

This is especially painful for the investment community because bonds also are getting wrecked.  It is risk parity hell.  But these forced sales and panicky reactions don't last long, so I do expect a bounce from these levels in the premarket today.  It won't be a big bounce, but we should chop from here to those prices seen on Friday for the next few days.  I have done some buys in premarket expecting a bounce soon.

This is why I was so cautious about buying dips during that past 6 weeks, and mostly did nothing.  Because a selloff like Friday was a matter of if, not when.  So it was poor risk reward to buy small dips when you put yourself in danger of being stuck in a monster dip like last Friday.  At the same time, it was tough to short because the grind higher just didn't give any easy entries as the markets were overbought, but not overextended to such an extreme as to provide a good opportunity.

This selloff could have been the best thing to happen for this bull market, because it will shake any tough guy intentions from the Fed to be hawkish at their September meeting.  With Trump gaining in the polls, and Hillary fainting, literally, Yellen and her crew will not want to rock this boat anymore before the elections.  They will want to be supportive of the market.

Don't forget, there are plenty of investors that were left in the dust on that post Brexit surge higher that didn't chase and were looking to get back in on a dip.  They will be the buyers over the next few days.


MM111 said...

Added final position at 2110 but it was painful for a while :)

MM111 said...

Out at 2163. This could be bigger.