I am the first to admit that I am at my best in a trending market and at my worst in a choppy range bound market. Furthermore, statistics show that most markets are not trending markets. So as long as the market is in this funk, I am forced to trade in my least favorite environment.
I can make both bullish and bearish arguments about this market. The bull case boils down to the fact that there is still lots of money out there at low interest rates and a favorable yield curve. The bearish argument is lengthy and has been stated here many times. As always, the bearish case makes the most sense, but the number of dead bears who have fought the tape are legion. So that leaves me playing small if at all until things become more clear. With that in mind, and being more comfortable with the bear case right now, I have made a probe type of trade by shorting the SPY. A body blow, if you will.
Here is an interesting article about the average length of bull markets. As one can see, we are just entering the zone where bull markets have ended - but there is much room for the bull market to last longer. The article is based upon data supplied by Schiller. There is much debate about this topic, because the indexes used to supply the data differed over the years.
Right now, the market is overbought and in rally / bounce back mode. Granted that the rally is narrow, on low volume and was laboring today. But it has not yet reversed back down. As I have shown in previous posts, each index has bounced in a different way. Thus, the NASDAQ 100 is just about at its old highs again, while the Dow Jones Industrial Average has made a pathetic dead cat bounce and the S&P 500 is somewhere in the middle between its recent highs and lows.
As expected, Janet Yellin is staying the course. She also did not stumble in her testimony before Congress. Also, nothing new has happened in the world's economies and the currency crises of Argentina and others has not become contagious. The essential question is given the poor economic recovery and the historic pumping of money by the Fed, what can Janet do to keep things going without pulling the rug out from under the recovery? How can she taper when the recovery is so pathetic despite the amazing stimulus? That's us at the bottom of the graph. Chart supplied by alias "hyperdyper" a great poster on IV.
God forbid we have any wars, but a black swan event occurring from Iran's actions of sending its war ships off the USA coast or Iran making belligerent war threatening speeches aimed at Israel and the USA may stir the pot. Maybe a China verses Japan war over disputed territories would shake things up. But maybe a black swan economic event outside the USA will do the trick. If not what is going to get us out of the horse latitudes?
Anyway, back from outer space and given the waning strength of this bounce, my SPY short may have a good chance to work out. I own no stocks and at present the Asian markets are down with the S&P futures down 8 points. Hopefully they will still be down in the morning. My plan is to be nimble and cover my short some time between 7 AM and around 10:30 AM. Having been chastened by the up and down volatility this past month, I think that grabbing nice profits when opportunity arises is the way to go. Then I will reassess things.
Then there are the big divergences in stock behavior. Look at these two great companies that have led the charge through 2013:
AMZN granted that AMZN is not making money but the revenue growth is there and whether one likes it or not, the market has supported AMZN all these years. Then again, one slip up like the recent bad quarterly report and the stock gets zapped.
PCLN on the other hand made a new high today. PCLN has a low PE and is growing like a weed. It responded well to great reports from EXPE and TRIP.
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