A Different Market

In the past, when there weren't so many V bottoms, you had traders try to find a bottom by looking for signs of capitulation.  With the free money train changing trading patterns over the past 9 years, it changed to just BTFD and wait for eventual higher prices.  With the Fed no longer pumping money into the markets, and with ECB and BOJ liquidity injections shrinking, the market is morphing back to its original pre QE characteristics.  More panicky selloffs and less V bottoms.  More U bottoms, with choppy price action at the lows and less urgency to jam up stocks by market participants. 

The mood has definitely shifted towards more gloominess, but there is still a strong undercurrent of economic bullishness.  But unlike past economies, this economy is dependent on asset inflation to keep the economy going.  There is very little secular growth, so what growth that comes needs to come from either lower interest rates/QE, or lower taxes and government spending, or from a rising stock market.  If the stock market goes down, the economy becomes more vulnerable to a downturn. 

In the past, the stock market used to forecast economic weakness and recessions.  Now, the stock market movements can be the cause of a recession.  The doctor has become the patient. 

It is a tough market for those who have been using the same playbook as the past 9 years.  It is not an easy BTFD market anymore.  There will be fewer sustained uptrends, and more sustained downtrends.  This is how a long term top is formed.  Even though I am long, it is a trading long only.  It is not something I want to hold for more than a few weeks.  The bounce this time around will not last as long or be as strong as those in the recent past.  It is a different market now and we've got to adjust to the new conditions. 

Strong gap up today, which I think will likely be sold into during the regular trading hours, as we are 40 points off the lows from yesterday.