So its not so much retail equity flows that one needs to watch, it is stock buyback flows. And while they will still support this market over the next 3 weeks, by the last week of September, the majority of corporations will enter a buyback blackout period, lasting about 4-6 weeks, depending on when the company reports. So the market could be supported at these levels for another 2-3 weeks, before it becomes vulnerable to selling pressure.
Also, it happens to coincide with the most bearish part of the year, the September-October time period. A lot of that is psychological, and it could be something to do with changing moods as the days get shorter, and the temperature starts dropping. In any case, the market is not far away from likely to face a move down to at least SPX 2800, and perhaps in a severe scenario, the July lows of 2700. I don't see it being able to get back to the 2530-2580 area just because of the persistent strength it has shown in breaking to new all time highs, which must be respected. In addition, the amount of the announced stock buybacks for 2018 and the amount actually bought is at a very large gap, so corporations will have to buyback more aggressively towards the end of the year if they want to fulfill their promises.
It doesn't feel great to be short here, but will try to make lemonade out of a lemon.
Expecting bonds to be under some selling pressure as there is usually a lot of corporate bond issuance after the summer lull starting in early September. Longer term, I am bullish on bonds, but in the short term, leaning bearish due to supply factors and also the coming ECB and BOJ meetings which will likely be more hawkish than most expect.
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The way the market has been trading looks more and more like a steady slow grind well into next year. CSFB just came out with a 3350 spx target in 2019. I feel that 3000 is a given now and we will breach that. But the action seems to indicate that for a durable top to form it's going to take many many months. Just seems like sideways action with a upward bias and one that seems to say the economy is strong and will be strong for the foreseeable future. Where do you think the real top is? I used to think that the 2nd half of this year is where I want to pick a spot for a multi year short. But I'm not so sure anymore and feel it's going to be sometime in the 2H of 2019. I feel that most everyone is cautiously bullish now and expect stocks to just keep going up for a couple more years.
It seems like people are forgetful as well of the huge run up we've had the last few years and mostly regard 2018 as some sort of mild bear market. As if it was some kind of correction and now we can continue going up much much higher. It's unbelievable but it looks like the market is saying we corrected through time and not through any real meaningful pullback.
Although I have a hard time imagining SPX going up to 3350 as CSFB says, I could definitely see the SPX grinding higher and making marginal new highs next year in the 2nd half of 2019, and then eventually drop sharply as US growth slows down (leading indicators are pointing to slowing growth starting early 2019).
I have also been too bearish this year and not given enough credit to the effect of the massive stock buybacks in keeping stocks elevated.
And yes, most investors are short sighted, they don't really look beyond the past year, so with the consolidation we've had from February to now, it looks like the correction is over and the market is refreshed and ready to keep the uptrend going.
The only people really worried right now about the level of the SPX are value managers, and they have been underperforming so badly that they've been marginalized in the overall equity market.
In the end, the only way there will be a bear market is if growth slows and SPX earnings flatten out. And I think that isn't as far off as most people think.
Good chance 2019 will be like 2000. Blow off top going into May.
It would be great trading in 2019 if it is even halfway as volatile as 2000. Thinking there will be a topping phase within 6 months, and then a bear market, but I've been early in calling a top so far, so not great conviction on that idea.
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