Egypt, Who Cares?

The market shrugged off Egypt today and everyone and their mom knows that we gap up on the 1st day of the month so we are closing strong.  But really, if we gap up tomorrow and keep going higher, we're right around 1296 again.  And it would really surprise me if we got back to that level after the beat down on Friday.  But playing the bear side doesn't pay unless you top tick the rallies.  Selling weakness is a fool's game in Bennie's ponzi scheme. 

Just 1% from 52 Week Highs

It doesn't feel like it though.  Another wall of worry that will be climbed.  Traders will grasp at anything to find an excuse for market action.  I think the ES would have sold off anyway even if they didn't show the Egypt riots on TV.  Oil and gold would have probably bottomed last week anyway without Egypt. 

Today is probably front running by funds who well know by now that every 1st day of the month is an up day (it is written in stone) starting with a monster gap up.  But the buyers have proven to be very eager again.

Panic is Gone

So did you expect a gap down after a beatdown Friday?  It is a pattern that is as old as the hills.  A panic Friday with a weak close followed by a big gap up on Monday.  It is too pat for the market to just ignore what happened on Friday and grind right back up to new highs by the end of the week.  The market will likely do some work at these lower levels before going back up.  But I am not going to bet against Bernank. 

Quite a Selloff

I am impressed by the bears for today.  This selloff came out of the blue.  I guess there are some riots in Egypt but that was going on when the ES was at 1298.  It seems more like the market hitting strong resistance around 1300 on SPX and the buyers are less eager than before.  It doesn't mean we'll crash down, because there are dip buyers underneath.  There are strong buyers around 1270, and strong sellers around 1300.  I don't expect much follow through selling next week.

Economy is Better

If you pump up someone with all kinds of steroids, human growth hormone, and drugs, you will get a bigger, stronger person.  Same with the economy.  Thus the better GDP numbers.  The patient is almost maxed out on drugs and artificial growth engines, it has built up a tolerance.  If you take away QE or fiscal stimulus, you will get an economy that goes back in the doldrums. 

The patient needs to go cold turkey but it won't be allowed.  Dr. Bernanke will be there to keep injecting drugs.  This market is hooked on easy money.  It does make the economy stronger, but with side effects.  $100+ oil will be one of those side effects.  The ES is basically untradeable these days so if you are not into long investing or trading small cap movers, I would recommend you take a break. 

AAII Bears Rose

The short-term trading oriented AAII sentiment survey came out with many more bears than one would expect being at a 52 week high.  It goes hand in hand with the growing buzz among traders that we need a correction or a pullback, and that it would be healthy.  I doubt that the market will oblige.  This renewed bearishness doesn't mean we keep going higher, but we can probably eliminate that well awaited 5% correction from the menu for the next couple of weeks. 

ES 1296

Just from my paper napkin charting, it seems like 1296 is quite a formidable barrier for this market.  That equates to about 1300 SPX.  Equity mutual fund inflows are continuing, now 2 weeks in a row, after an extended period of net outflows.  It is amazing that this market has been able to rise so much without the equity inflows.  QE2 has had a dramatic effect in boosting stock prices.  We may not get back to a normal market till July, when the Fed isn't buying bonds everyday.  Until then, it will be hard to predict the market based on historical patterns.  There is no precedent for the amount of money pumping in non-crisis situations.

FOMC Prediction

This FOMC meeting will provide no major surprises, the Fed is not ready to change its language other than maybe giving a slight improvement in the economic outlook.  There should be nothing to derail the current rally, but we might get a sell the news reaction anyway because we are right near 1300 SPX resistance.  If we do selloff on the news, it probably won't last past Thursday. 

Hedging

I've noticed a high index put call ratio over the past 2 days, after options expiration.  Looks like investors want to be hedged for a possible pullback.  When investors are hedged, they are less urgent to sell. 

Earnings Season

Most of the earnings season is past us and there were no big surprises.  Earnings aren't blowing out expectations like the past because consensus numbers are higher than before.  This market has been dull, so I haven't done much.  I still lean towards the bullish side in this tape.  Europe has been remarkably strong over the past couple of weeks so it is fair to say that the European worries are out of the picture for the time being.  It was a worn out story anyway, and those that wanted to sell Europe already have. 

The only real problem out there that could derail this market is China tightening.  But China doesn't have that high of a correlation to the S&P like Europe does.  So I'm not sure what will be the catalyst for the next correction.  It could be the Fed laying off the dovish tone in its March or April meeting.  The Fed will likely stay close to the party line of low inflation, high unemployment for this upcoming meeting. 

It's Not That Easy

Reading the news over the weekend, mostly about stocks.  And the general belief is that we've gone too high without a correction, and the market needs a breather.  A pullback would be "healthy".  That is another way of saying that the pundits have reduced positions and are hoping for a pullback to get longer! 

Most of the pundits say a 5-7% correction would be healthy, down to about 1220-1230 on the S&P.  The VIX shot up too much last week for such a meager selloff.  It tells me traders are more nervous than the surveys say.  I don't think the correction will come now or from these levels.

Bull Market Doldrums

There is a recency bias that occurs in the market, so some traders don't remember or forget what a bull market feels like.  It is a pain in the neck for index short sellers, and rewards dip buying.

There is a wall of worry despite what the sentiment numbers and the put call ratios say.  Traders are still worried about Europe, China, and to a lesser degree housing.  Tepper mentioned the first two, and he's basically thinking the same thing as the rest of Wall St. 

Only this month have retail started to cut back on bond fund allocations and got into equity funds.  This should continue for several months.  Retail is only now starting to jump back in on the equity bandwagon after getting burned in the flash crash and European woes last year.  Give this bull market some time, let the retail traders pile in again.  There will be plenty of time to short this market later.  No need to rush.  Have a good weekend. 

Tepper Says

I didn't even know who this guy was until he came on CNBC last fall, and called for the market to keep rallying.  Anyway, he's still bullish, but less than before.  So I can go ahead and buy now?  Yeah right.  In this business, you can never rely on tips, or other's advice.  You've got to make your own choices.  I think the market will keep going higher, confounding a lot of people, but it won't be because of people like David Tepper being bullish.  We're in a bull market and the economy is still improving with many job gains ahead. 

We still haven't got that blow out jobs report that makes everyone excited.  ADP has, but not nonfarm payrolls.  When we get a few of those, then I'll be more willing to look at the dark side. 

Bottomed for Today

I expect a short squeeze and long buying into the close.  It should be furious dip buying.  Would not be surprised to see us get back to flat on the day in the ES.

Buying the Dip

I am buying this opening dip for a trade. I believe we will be at higher levels next week.