13 replies to this topic

[Rich C]

From the weekend letter:

 

Last week, I said that IT Momentum had turned up and confirmed, but that ST and Swing Momentum were neutral. I noted that all were rather flat and buried, so they were not much help. The Options were almost all Bearish, except for the OEX P/C which was flashing a Buy. We acknowledged that we have some really overdone sentiment, but we noted that we are at a point of recognition with a lot of factors working for the market between the strengthening economy, good capacity utilization, and, looking forward, good earnings and better tax policy. Plus, we noted that there's no place to put money besides the stock market. So, sure, sentiment was really over done, but at this point in this rally, looking for a top based upon even the most reliable sentiment, is all too likely to be painful. I thought we'd do well to buy dips here. And that proved to be a good approach. It's important to note that sentiment won't stop a rally. What it tells us is if there's good fuel for a decline, IF there's reason to sell. Without that reason to sell, there's not likely to be a decline. In fact, the excessive Bullish sentiment tends to be supportive of the rally. As we've seen. Tonight, we've got a Buy from the VIX P/C and a Sells from the CBOE:SPX, the Options Oscillator, and the Fully Long Fully Short (at least for now). The lack of Short Bears suggests no top on Monday. Ordinarily with sentiment like this, I'd be inclined to look for some selling, but we're at new highs in a parabolic rally in a uniquely positive context. Until we see some deterioration, I'd not be worrying about catching a decline. This rally could get even crazier. I have been a professional investor since before the Crash of '87. This market has a very different feel from the markets prior to the big Bear Markets that we've had over the past 30 years.  I'm not going to stand in front of this rolling freight train.

 

Mark, that's some fine writing, thank you!!!  I would say it encapsulates my current feeling pretty well.  My statement has been that I don't like the technicals on overbought, but they appear to be swamped by the tax cut impact on earnings this year, a slight quickening of GDP growth, and a coordinated global recovery, and currently we are in earnings season and it is going well.

 

Rolling freight train.  Yes.

[Data]

There was a big paydown in debt at the end of December, likely a result of the special one-time tax.   It reduced the federal debt by 98 billion dollars.  Since as much as 2.8 trillion dollars is subject to the 'repatriation' tax, there is likely more to come.

[MaryAM]

It all comes down to liquidity and money flow and as long as new money is flowing into they system, with no counter party risk, this puppy will go and go until it can't go any further as the money has no where else to go but into the markets.  The FED is still pumping massive amounts of new money into the system and as far as I can see - IT CANNOT STOP.   If it stops, the system collapses.  NEVER should the FED have ever been allowed to purchase private debt, especially private debt that it cannot sell at any price.  

https://fred.stlouis...org/series/MBST

[melonseed]

Mark. I think "different feel" can be further broken down to details. Long/Short covering timings and behaviors and more. Some of which are totally different from just a couple years back. Could be new financial measures, new breed of investors entering the market, not like it matters. What matters is we change behavior with the market quick enough. Glad some things don't change though. Rule of lines and sharp declines. Temptaion to pick top is the word. Even bulls like dachief might pick a top eventually but his trade are LT position trades, can take a long while before we get to call a LT crash. How can a trader resist when a day of short earnings can equate to a week of long when the cards are dealt in favour? I am still picking IT tops but have reduced greatly on my wager on the short side. Thank you for your insights.