They don't make the markets like they used to anymore. In the past, when it was 100% humans trading, past patterns worked more effectively. You would have more short term dips, and they were good risk/reward buying opportunities. Obviously, everyone knows that game now, BTFD, so the dips are shallower, and don't last long.With a lot of money being managed passively or through systems and algos, the patterns have changed. That is how you get the least volatile period in stock market history happening in 2017 as the market made all time highs. Now its a self reinforcing situation in overdrive, without human emotion there to keep it in check. Humans are more easily scared that computers, and if you replace a lot of decisioin making with computers, then the market will trade with different characteristics. It will be more focused on sizing based on short term volatility, being more aggressively long when there is less volatility. Also, the dip buying systems are a force in this market, overwhelming the short term risk reductions of the conservative, risk-adverse systems which are underperforming. That is why you aren't getting a 5% correction, much less a 3% correction. Nowadays, corrections stop at 1%, and even then, those corrections don't last long.
I have not done enough critical analysis of the paradigm shift that is going on in financial markets. I tend to focus more on historical patterns for short term trading, and fundamentals for long term trading. The fundamentals still apply like they always do in the long term, but short and medium term patterns have definitely changed. Some of that is a product of the super low VIX period we are in, but most of it is structural, with less human trading.
The short term trading strategies that I have used in the past in the S&P futures are no longer consistent money makers. I haven't used them much because they don't work well in this kind of low volatility grind higher market. Trading against other humans is much easier than trading against HFTs. And if you are short term trading, most of the time, HFTs will be on the other side. It is especially disadvantageous if you are trading counter trend with size going against predatory algos that look to push positions towards stop zones. That is why I rarely day trade these days. Unless you have actual paper order flow, and not just HFTs making markets, there is very little edge. And the only time that paper order flow comes out in size is during high volatility periods.
Anyway, it has been a tough time for counter trend traders, but my fundamental outlook is still the same, so I see any short term losses from this time period to be made up in droves when the market makes a top. While I don't like losing money, it does make losing money easier to handle, because if I stick with the fundamentals, which favors shorts, eventually the losses will be made back in the long term.
I am looking to add to shorts very soon, I've been patiently waiting for this opportunity to add when the market gets overextended. It feels very overextended now.
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The SPX is going to 3000. Lets be real with ourselves. The momentum is unreal. I actually think we will top out at between 3000 and 3250. There is no sign of recession in the economy. Member balances on loans and deposits continue to grow at the credit union. People are buying cars and getting jobs. The only thing that will kill the market is rate hikes just like in 2000. And that will not happen till the second half of this year.
Do you have any parameters that signal when you are wrong? You've been short since Jan 2.
The best parameter signaling that I am wrong is P&L. The bigger the loss, the more likely my signal was wrong. It is loss mitigation at this point.
I would be shocked if SPX hit 3000. I already think we're more than halfway through the final blowoff phase which started at 2700. It does feel like a liquidity pumped version of 2000, which means there isn't much upside left.
Did you add to your short? I think we can pull back a little but i am sticking to my call of 3000 by end of march and 3200 by may. Recall I said the spx will go to 2750 to 3000 last year.
No, but I am about to add short into this gap up this morning. 3200 by May is a long shot. This market is so bubbly already.
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