Friday, March 17, 2017

Buyback Blackout Period

We are now entering the corporate buyback blackout period ahead of Q1 earnings announcements.  This bull market has gone up mainly because of the corporate buyer, willing to issue bonds to buy back their own stock.  For most of the past 8 years of this bull market, you have had net outflows from equity funds.  The market has been able to overcome this outflow with corporations buying back a ton of stock, reducing supply enough to drive prices higher.

A disproportionate number of pullbacks have occurred during this buyback blackout period: October 2014, January 2015, January 2016, October 2016.  That covers more than half the meaningful pullbacks over the past 3 years.

Plus with the likely reduction of long equity positions ahead of the French elections, it is a near ideal setup for a short here.

Don't believe the hype that the market wants to see the Fed hiking.  The market always wants easy money.  The Fed seems determined to regain some credibility after completely failing on their forecasted 4 rate hikes in 2016.  A rising stock market has given them the perfect backdrop to keep hiking.  But eventually, the stock market will revolt and drop hard.  I don't think we are at that point yet, but it's something to look for later this year.  This economy is not as strong as the pundits make it seem.  It needs ZIRP and a rising stock market just to maintain its low growth.  If you have neither, which is very possible later this year, the economy will be in some pain.


Anonymous said...

TrendRambo on Twitter: Today,Friday was constructive $SPX. I am back to the bull camp. Above moving averages and financial should rebound next week.

Market Owl said...

I am bearish for the next few weeks. Still haven't gotten short yet, and I might not get a chance as this thing looks weak. I will smack any bids if we get close to SPX 2390.