Friday, April 7, 2017

Knee Jerk Reaction

As soon as the news came out that US bombed Syria, the SPX plummeted, and gold, oil, and Treasuries rallied.  People forget that World War II is what helped boost the US economy coming out of the Great Depression.  Or how about the Iraq war in 1991 and 2003, both which led to big rallies in stocks in the coming years.  Not that there will be war, but if there is, its actually better for stocks than if there was peace.

The clearer heads are prevailing at this hour, as the SPX has made back all of the knee jerk losses and oil has retraced most of its after hours gain.

If there is one thing we've learned in 2016, is that the market is much more efficient and quicker in going to its natural level.  The markets are smarter.  It may have a knee jerk reaction to news, but it doesn't stay at that irrational level for long.  That is what we saw on election day in November, and yesterday after hours on Syria.

The retail chicken littles will have a field day being bearish because of Syria, and they will be wrong again.  Not that they matter, because they don't have enough assets to matter.  Of course you have the Fast Money crew get all beared up because of this, and they will also be wrong again.  In the end, those that are using news headlines to guide their trading decisions pay the price.  It is boring stuff like Fed policy that really matter, not the splashy headlines of military attacks or Trump quotes.

I am getting more convinced that any fear based bottom made this month will be shallow, and will lead to new highs by May.  The stock buyback blackout period lasts for another few weeks, and then corporations will be back providing support to their stocks.  We've still got a few more months to go in this bull market, even though its the final stage.  I have switched my bias to a buy the dips mode, and will have to have almost a perfect scenario for me to short the SPX.


MM111 said...

Been super volatile. Do you think that 2320 may be bottom then or quick stab down to 2300?

Market Owl said...

I am thinking somewhere between 2300 and 2320 for a bottom. If we go down there, it won't stay in that price range for long. There is a big pool of dip buyers waiting to get in a bit lower. So if it gets to 2320, best to start scaling in long.