While I am happy to see the S&P portion of my portfolio reach fresh highs every other day, I have to proceed with caution given the way the market been behaving as of late. Yesterday's failed outside reversal was a major bearish cue, and the technical argument against continued S&P rally is sound. From the weekly, to the daily, to the hourly, we see confluence in the price arrival at the 2x fib extension of 2008's high and 2009's low (bubble & bubble burst, respectively), an ending diagonal formation, MACD divergence, and finally the aforementioned potential outside reversal (or bearish engulfing candle, for lack of a better term). With the Dow posting steady gains (up 1.2% this week, compared to the S&P's .2% loss), investor's search for yield and potential profit-taking may trigger a decline in the S&P sometime in the coming month(s). While I am cautious of the S&P's health, I am not advocating anyone short the market but rather proceed with caution while buying FANG and related stocks.
"I'm at this point still in the camp that there might be multiple years left before the next recession," added Jim Paulsen, Strategist, Leuthold Group.
MattSzwyd
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@tradeBob1, Therein lies the problem -- we all know that it's going to happen, but if it's made it through this much turmoil what will finally initiate the fall?
SimonPhillips
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I think the economy is no where near going into recession. Nothing at all indicates that quite contrary economic growth is finally catching up to stocks. Stocks can still correct 10% etc. without a recession and in my view, it will be very short lived and should be viewed as a long term buying opportunity.
MattSzwyd
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@SimonPhillips, End of a business cycle recession, probably not (unless you're a K-wave theorist perhaps); financial squeeze due to a fallout in the Fed's QE and experimental monetary policy? More likely, I think. I'm more or less implying that the floor in the equities and bond market might start to falter, and what kind of economic data might start triggering mass anxiety and the flow of funds out of higher risk growth stocks into higher dividend / steady cash flow equities (healthcare, consumer staples, utilities, etc.).
SimonPhillips
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@MattSzwyd, I don't really know what might cause the next panic. Hope it's something good. For the first time in a couple of years I am no longer an equities mega bull and am happy to wait and see what happens with gunpowder ready to buy on the next panic selling. I exited most of my longs last week and will be buying selected s and p puts on any blow off top that might happen this month. You can already see institutions moving their money from ndx into Dow stocks on the charts now! Early warning signs of risk appetite decreasing along with what I view as a current major trend change in gold which I see breaking those 1300 double tops this year. One thing I'm certain about though is this secular bull has a lot more gains to come in the next few years and there isn't really anything I see right now that has the systemic power to created depressed economic conditions like 08. Let's see should be an interesting 3-4 months
MattSzwyd
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@SimonPhillips, If only predicting the behavior of market participants en masse was as easy as predicting a short term market move in response to 200-day EMA resistance.
SimonPhillips
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I think if one did want to short the market - or at the very least hedge their individual long term long holdings - Put Option on the S and P are extremely cheap at the moment with the VIX consistently average record lows. I would be inclined to initiate puts with December Expiries.