Bear Market Action

Bear markets don't give you a lot of time to sell the highs, and that is what has happened when the SPX has gone above 2800 in each of the last 3 face ripper rallies since October.  In bear markets, if you hesitate, you miss the top.  

As I have mentioned before, fundamentals are the long term driver of stock prices.  Not investor positioning, not headlines, and definitely not technical analysis.  The October earnings reports gave you an in your face hint that earnings are slowing, and the FANGs got punished for it.  What do you think investors will do during stock buyback period starting in late December and lasting into end of January?  Wait for earnings to sell?  No, they will be selling ahead of earnings, which we know are going to be bad (at least those who don't have their heads buried in the sand).  

But this market is so weak, much weaker than the late 2015/early 2016 market, because at least those markets gave you a lot of time to sell the highs, and the rallies lasted several weeks, not several days.  Also, you had much more loose monetary policy back then along with lower valuations.  If I am a long, give me monetary stimulus over fiscal stimulus every time.  

So now that we're back to pre G20 levels, I am not so eager to look for a short, but I am definitely not looking to get long either.  It is hard to sell weakness because of the threat of a face ripper like we had last week, but if you hesitate in getting short (like I did), then you will often miss the golden shorting opportunity.  

I am hoping for a Fed rally sometime in the next 2 weeks when Powell speaks again or at the FOMC meeting.  That will be the time to get short and ride it down into late January.  I am not interested in the long side.  

As for bonds, I expect curve steepening, in particular, the 5-30 part of the curve.  Given the bearish stock market conditions, I don't expect the Fed to hike more than once so that should benefit the short end much more than the long end.