Thursday, February 15, 2018

A Little 2000 and a Little 2007

I sold too early yesterday at 2694.  I can't help myself.  At this stage of the bull market, I am just a nonbeliever when it comes to the long side, which makes me want to sell rallies quickly, before they peak.  Even though I know that I am selling too early based on past experience.  These rallies off panicky V bottoms usually last longer than I expect.  But those past experiences were in the middle of a very strong bull market.  The market will act differently near the end of a bull market compared to the middle of it.  That is why I am nervous holding longs in this market.

I know it is presumptuous to assume that we are near the end of the bull market, but almost every anecdotal, fund flows, retail trader volume, and valuation metric supports that assumption.  I still can't get over the fact that most CNBC guests brushed off the 340 point plunge in the SPX in less than 2 weeks as just technical selling.  Of course the huge rally in the first 3 weeks of January was all fundamentals.  The selling is viewed as irrational and technical, just some overleveraged traders blowing up, and algos causing panic.

I haven't seen so much confidence in fundamentals since 2000.  Even in 2007, near the top, there were worries about a housing bubble and credit problems from subprime.

I have an acquaintance who is an on again, off again stock investor, buying into Chinese equity mutual funds in 2007 and after that debacle, finally buying stocks again in 2017 after a 10 year break, and to boot, investing not in bitcoin, but altcoins (because they are cheaper) near the end of 2017. 

He has been bragging about his 2017 stock gains, mostly in tech stocks, and while he was shocked by the big drop last week, he viewed it as bots gone wild, and and refuses to sell because fundamentals remain strong. 

Deep in my gut, I have a feeling that 2018 is a mix of 2000 and 2007.  Like 2000, you had a huge rally in tech and growth stocks.  Interest rates were going higher.  Globally, it is a lot like 2007, with real estate speculation at all time highs in parts of Europe, Asia, Canada, and Australia. 

A lot of times I let my big picture ideas get in the way of short term trades.  But I often find the path of least resistance, and thus the odds, favor those who are on the right side of the trade long term, even if it is a short term trade idea. 

We got a relief rally even after the CPI came in high.  It tells you a lot about the market positioning ahead of an event.  A lot of shorter term traders and investors were nervous about the CPI number and either sold or hedged ahead of the event, or right after the event, which meant the market really only had one way to go after the dust settled, which was up.  It was similar to the bad nonfarm payrolls report that came out in early October 2015, when the market gapped down huge on a miss, only to rally huge from the opening bell all the way to the close.  That NFP report happened to come right after the market had bottomed, similar to the CPI number yesterday. 

A big gap up today after the big bad event(CPI) is over.  It just happened to gap up into a strong resistance zone near 2720.  You are getting the fade off that strong open today, which makes me think that its going to be difficult to go up much higher from these levels.  Waiting for a possible short next week, if the ES is between 2720 and 2740. 

1 comment:

Anonymous said...

Biggest point drop in history, followed by 2nd biggest point drop in history (lol), followed by an 8% v bottom, 5 up days straight in a row.

Fun market.