Friday, March 23, 2018

Wearing Out the Dip Buyers

It has been wave after wave of selling in stocks since the Goldilocks NFP and CPI came out.  Those just happened to be right near the top, where you had tons of ETF inflows into equity funds.  Figured that after that kind of massive buying, you would get a correction off that move.  Just surprised at how big the blow back was after such furious buying.  I was definitely premature with the long entry on Tuesday, thinking bottom before FOMC and then rally afterwards after the uncertainty was lifted.  But the fundamentals are shaky for stocks at these overvalued levels, so its not going to react the same way as it did the last 9 years.  Its going to take more selling waves than in the past to clear out the overleveraged and the don't ask don't tell buyers. 

But it has been 8 weeks since the top in the S&P on January 26th.  Usually previous corrections in a strong uptrend don't last more than a month, but in the few cases that they do go beyond that, the correction is usually near its end after 8 weeks.  From a time perspective, the correction has mostly run its course.  However, we haven't gotten that double bottom which has marked the end of a lot of the previous panicky corrections (Aug-Oct 2011, Aug-Sep 2015, Jan-Feb 2016).  That either means that double bottom is coming ahead soon or we're just not going to get it.  I am definitely leaning towards the not going to get a retest double bottom, but I can't rule it out considering the weakening fundamentals of this stock market, and the tighter liquidity conditions. 

All one can do is play the probabilities, and the odds favor holding a long SPX position at these levels.  I added at the close yesterday at 2645 and overnight around 2630, so I am fully loaded.  Checking on the put/call ratios, they are similar to the tariff tantrum selloffs 3 weeks ago, which is high, as expected.  It will be interesting to see today's price action, it seemed panicky in overnight trading so it feels like a bottom is just around the corner. 

1 comment:

Anonymous said...

TrendRambo on Twitter: Trump is working on to take control of markets. He is surrounding himself with the best Americans:Peter Navarro - he knows what makes the market tick - Powell will execute policy and Kudlow will be the cheerleader. The globalist Rotchilds are out:
Gary Cohn - Yellen - Stanley F : they are out to regroup for another day - they are formidable zio enemy.
Waiting for the Trump team to take control back - obviously lower levels and not higher: SMART!