Long Term Sentiment is Shifting

The bulls are now the traders.  It used to be the bears who were the traders, but now the bulls are the ones who are looking to get their points and get the hell out of the battlefield.  You saw what happened after the midterm elections when the bulls (including me, a temporary bull) were looking for a bigger, longer move higher, like what happened almost EVERY time after a V bottom from 2009 to 2018.  But look what happened on Monday, and what happened in the week after the midterm election rally.  It was a bull bloodbath.  

There are a lot of dead bodies above, and they haven't been able to unload the bodies on the bigger suckers on rallies, because the rallies have been so brief, and the market reluctant to trade for a long time near the top.  

And what used to be reliable reversal signals off of high put/call ratios and oversold readings have not produced the same type of rallies.  These rallies have petered out much more quickly, and the reversal off the tops have been much quicker.  There is a clear change of character that is much more deeply fundamental than trade war and Fed headlines.  Weaker earnings based on 1) slower GDP growth and 2) higher wage growth are starting to weaken the earnings outlook for 2019.  That was the fundamental backdrop for the beginning of the 2000-2002 bear market.  This is a similar situation.  

Earnings growth was the main driver for the bull market from 2009 to 2018, not QE.  Just look at Europe, who hasn't been able to get the same type of stock market gains despite doing a massive QE itself.  With lackluster earnings looking like a foregone conclusion for the next few quarters, the bulls no longer have the earnings growth tailwind at its back.  At current valuations, the bulls are now the ones fighting the uphill battle with fundamentals, not the bears.  Even at the current level of SPX 2690, you have a trailing P/E for the SPX of 21.7.  That is a lot to pay for low growth.  

What I am hearing from bulls to support their case are tactical, not fundamental.  Year end rally, bearish sentiment, oversold readings, etc.  It is quite a change from the more fundamentally derived arguments that bulls made earlier in past years.  With such weak earnings guidance from the tech companies, the bulls can no longer talk about company fundamentals as a positive catalyst anymore.  It is now just about investor positioning, sentiment, and technical analysis.  

We have a bit of a positive mood after the closing rally yesterday.  I don't think the selling is done, and would expect more weakness within the next couple of days, but I am not trading it yet.  Will wait for an easier trade as we get closer to the FOMC meeting.