The central bankers saved the markets in 2011, coordinating the intervention with the Fed's Operation Twist and the ECB's LTRO 1 and 2. The money-printing sent markets higher into the April 2012 top at +40 when the central banker push ran out of gas. The market bottom occurred after the May 2012 sell off at -110. ECB's Draghi said he will 'do whatever it takes' and followed up with the OMT program last summer. Chairman Bernanke chimed in to support the ECB saying that he will supply QE Infinity, mainly a jaw-boning exercise dubbed QE3. The September-October 2012 top was created at +70. Then the key mid-November market low occurs at -50. This is also where the CPC put/call ratio touched the important 1.20 level, which signals fear and panic returning to markets, and a time to go to the long side. That turns out to be correct since the markets never looked back from November through the present. QE4 Infinity and Beyond replaced Operation Twist with outright purchases creating this year's initial rocket fuel. The ECB's OMT program, although not even tapped as yet, aids the equity buoyancy as well. The BOJ easing program (weaker yen) hit the afterburners for the broad indexes from March through now creating +60-ish with the NYMO.
At near +60, what do you think will happen? Markets should top here and sell off until the NYMO makes its way down to -40 and lower. If this is in concert with the CPC moving above 1.20 it will be a good time to enter stocks on the long side that can be held on an intermediate basis (weeks and months). But at this +57 level for NYMO right now and a CPC and VIX that remain complacent, as well as a extremely elevated SPXA150R, this is the time to pare back all longs and bring on shorts since a significant pull back is likely on tap, perhaps double digits to the down side. The coming days, or today, may mark the top. Even if shorting the market is not your bag, it would be prudent to take profits on the longs and rotate into cash until the deck is cleared perhaps over the next couple months. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
KS, I am very confused , a lot of people are saying the opposite, that we are going to still go higher, I agree with what u are saying as I have a lot of underwater shorts and I am at a point of not sure to cut them or wait till the drop as you explained.= or try to get fully hedged , Percentage wise how sure are u the we may get this drop soon eg,- 50% , 80%, 100%
ReplyDeleteAnon, nothing is ever certain in trading, you simply have to make a prudent decision based on all your tools. One thing is certain, however, you want to develop your own favorite tools to use, and trading platform of trading techniques, and follow your own work not others. But you are correct. A bear image is now placed on a milk carton. Everyone is bullish. Even folks that wax worry, are turning around and buying stocks as evidenced by elevated NYMO, SPXA150R, BPSPX, and low CPC and VIX.
DeleteThe old joke says, 'I'm often wrong, but never in doubt'. LOL The tools, chart negative divergences and such all say down, but the central bankers are strong. No one knows how it will end since this is all uncharted territory. Not only is no longer anyone around for the massive deleveraging during the Great Depression, but this amount of central banker intervention is unprecedented, not even the Fed knows what will happen. No one does. In the short term, however, markets appear at a top, time will tell.
Anon, allthough one should cut loss far quicker than taking profits (which requires discipline and not getting married to a position); it's not all that bad if one hedges. so mainly longs in a bull market, with some shorts to hedge for any pullback. vice versa in a bear market. Just don't let the hedge overtake your main portfolio's weight so to say.
DeleteI have some shorts too; as a hedge for my longs, when we get a pullback. That way I am ensured some profit either way the market goes and can off set some off the long-losses during the pullback.
http://stockcharts.com/h-sc/ui?s=$NYMO&p=W&yr=5&mn=6&dy=20&id=p16809541745&a=301897757
ReplyDeleteKS, I hope you don't mind my 2 cents worth, and I hope the link above posts ok.
What I see with $NYMO (remember how it's determined) is that breadth leads price, and price will echo higher prices once NYMO rolls south, and will echo lower prices once it rolls north. That's what creates the divergence - same as with any momentum based indicator.
I've added a line at 55 to provide some context for viewing, and SPX is the equity plotted behind it.
We all understand the randomness of the street in lower time frames, or from one period to another. Putting that aside (there's always the possibility of an escape hatch), can you see a case where the first peak resulted in more than just a pause before price continued higher?
I respect being underwater. Been there, done that, will do it again. But this trend is historic. Any sell-off is going to be bought until something fundamental changes (not the main street economy; I'm referring to central bankers).
The current formation calls for a compressive check at some point. But take a serious look at this chart. This current formation started with a push up in early april (call it a "1" or "A"), one week of pullback, and then the current buying thrust.
Based on the length and position of the next run, is there much doubt that follwoing a single compressive downmove (when????), that there will be a breadth echo of some length before the NYMO top, which will proceed a price top?
I expect the weekly trend (allowing for a minor p/b) to be up through - really - July - maybe august.
nice chart! nice analyses. 1600 is now bull/bear line in the sand IMHO. This will either stall at 1640ish or march right to 1680s before any more significant pullback.
DeleteI guess, we can only turn a little more bearish if the dips are not bought on a closing day basis
ReplyDeleteInteresting stuff Steve, all thoughts are welcome most of all the ones that disagree. Keybot is on your side. Early April low at -55 (using daily numbers), this would be the -38.07 on weekly. This is the SPX low at 1540. The bump to +20 NYMO on daily chart is SPX 1597, the move lower to -40 (daily) is SPX 1538 marking the April bottom. Now +57 at SPX 1626. So nice time for the drop. It will be interesting to watch.
ReplyDeleteAgree on a potential move back up after an initial selloff, the question is how much for the initial sell off then how far back up afterwards. Current thinking is perhaps a 2 to 6% sell off, maybe May-June, then back up, then roll over again, but can only take one step at a time. We will see if the sell off occurs first. Perhaps the summer headaches may be the politicians like 2011.
The Fed changes Seasons this year. The more we believe in May go away, it will not happen, in fact, May could be an up month. They may keep Summer going up up up, then freeze Winter.
ReplyDeletekeeping longs, but hedging with shorts
ReplyDelete