Looked like this morning the rally was getting ready for a gut check, until negotiators decided to keep talking and futures completely reversed overnight. Seems obvious to me why... they can't come away before the 3/1 deadline emptyhanded w/ nothing to show after 3 months of talks. There will be some kind of "deal" in the next 2 weeks, even if it's a deal to keep talking about deals.
So now $281 seems like the terminal point for this gravity defying wedge we've been in for all of 2019. Easy, buy some Mar 1 calls and sit back and enjoy the ride right?
Some things to consider on the way up:
1) I don't expect this rally to end until some meaningful "event" happens with the trade talks in the next 2 weeks. Maybe it's in the form of a partial deal, an extension to the deadline, or some half-assed commitment to pick each other's buttholes. Regardless of what it actually is you can be sure of 2 things:
a) The bulls will celebrate orgasmically and gap up to a level where you think "we've won, we've finally done it!"
b) The market will then proceed to sell off spectacularly as speculative investors trip over each other to take profits.
c) Trade war related headlines will continue to infest the market in 2019 (yay)
2) Why? Because this market (and more specifically indices ETFs) stopped trading on fundamentals weeks ago... Investors are tightfisting shares because they're all expecting some kind of blow-off top event and nobody wants to be THAT GUY that was in cash when the china deal was signed. This kind of bubblelicious demand has artificially inflated the price of index ETFs. Nobody cares if SPY is 230 or 270, they just know it's gonna POP SOON, so they buy it looking for the quick buck without giving thought to valuation or fundamentals. You can see evidence of this in the recent pick-up in volume... despite the market starting to show signs of distribution and weakness and the presence of worrisome news, volume has actually picked up w/ speculative traders crowding in for the last leg of the ride. They know it's a bull trap, but they're getting in anyways... These guys aren't gonna stick around to see if this thing can rally to ATHs.
3 Any bad news, no matter how negative, is just another reason to buy until a trade event is announced. Worst December retail since the recession? BUY. Europe on the verge of recession? BUY. Poor earnings from megacaps? BUY. Trade talks stalled? BUY. This is a squeeze not in the sense that there is overwhelming demand, but a lack of supply from indifference to bad news. Regardless buyers outnumber the sellers right now.
4) The elevator to $281 seems just too "obvious", and the market rarely makes the obvious move. That purple trendline from 2009 seems to be the only real meaningful resistance that I can find. The yellow line (from 2007 highs) gave us some trouble last week. Could very well be that the market thinks we're "close enough" and unload there... maybe, but again, probably needs to be tied to some trade talk related news. My hunch is that we get there either extremely quickly (like Tuesday), breakdown early (purple line), or just keep gapping up at the current pace (prolly means we go even higher back to ATHs)
5) Once investors realize there is no longer an imminent windfall in the form of trade resolution tied to equities, they'll actually have to rely on fundamentals for valuation. They have to start wondering why ETFs like QQQ, which has rallied despite over 50% of their components reporting disappoint earnings/guidance, is worth its price... or whether an earnings recession really is caused by tariffs, or just overall disinterested consumers.
All in all, get yourself some calls in the mean time to get rich quick, and once this thing crosses 279-280 grab some mar/apr puts if not just to hedge your long positions.
Currently long GLD, SLV, straddling short term calls and medium term puts in SPY and some other parabolic bubbly stocks, short XLE, QQQ.
So now $281 seems like the terminal point for this gravity defying wedge we've been in for all of 2019. Easy, buy some Mar 1 calls and sit back and enjoy the ride right?
Some things to consider on the way up:
1) I don't expect this rally to end until some meaningful "event" happens with the trade talks in the next 2 weeks. Maybe it's in the form of a partial deal, an extension to the deadline, or some half-assed commitment to pick each other's buttholes. Regardless of what it actually is you can be sure of 2 things:
a) The bulls will celebrate orgasmically and gap up to a level where you think "we've won, we've finally done it!"
b) The market will then proceed to sell off spectacularly as speculative investors trip over each other to take profits.
c) Trade war related headlines will continue to infest the market in 2019 (yay)
2) Why? Because this market (and more specifically indices ETFs) stopped trading on fundamentals weeks ago... Investors are tightfisting shares because they're all expecting some kind of blow-off top event and nobody wants to be THAT GUY that was in cash when the china deal was signed. This kind of bubblelicious demand has artificially inflated the price of index ETFs. Nobody cares if SPY is 230 or 270, they just know it's gonna POP SOON, so they buy it looking for the quick buck without giving thought to valuation or fundamentals. You can see evidence of this in the recent pick-up in volume... despite the market starting to show signs of distribution and weakness and the presence of worrisome news, volume has actually picked up w/ speculative traders crowding in for the last leg of the ride. They know it's a bull trap, but they're getting in anyways... These guys aren't gonna stick around to see if this thing can rally to ATHs.
3 Any bad news, no matter how negative, is just another reason to buy until a trade event is announced. Worst December retail since the recession? BUY. Europe on the verge of recession? BUY. Poor earnings from megacaps? BUY. Trade talks stalled? BUY. This is a squeeze not in the sense that there is overwhelming demand, but a lack of supply from indifference to bad news. Regardless buyers outnumber the sellers right now.
4) The elevator to $281 seems just too "obvious", and the market rarely makes the obvious move. That purple trendline from 2009 seems to be the only real meaningful resistance that I can find. The yellow line (from 2007 highs) gave us some trouble last week. Could very well be that the market thinks we're "close enough" and unload there... maybe, but again, probably needs to be tied to some trade talk related news. My hunch is that we get there either extremely quickly (like Tuesday), breakdown early (purple line), or just keep gapping up at the current pace (prolly means we go even higher back to ATHs)
5) Once investors realize there is no longer an imminent windfall in the form of trade resolution tied to equities, they'll actually have to rely on fundamentals for valuation. They have to start wondering why ETFs like QQQ, which has rallied despite over 50% of their components reporting disappoint earnings/guidance, is worth its price... or whether an earnings recession really is caused by tariffs, or just overall disinterested consumers.
All in all, get yourself some calls in the mean time to get rich quick, and once this thing crosses 279-280 grab some mar/apr puts if not just to hedge your long positions.
Currently long GLD, SLV, straddling short term calls and medium term puts in SPY and some other parabolic bubbly stocks, short XLE, QQQ.
Comment:
One more possible scenario (simply because nobody is talking about it...) is that Friday WAS the top of this rally. Plausible given how every bull and bear have accepted that 2800 is in the cards and the 200DMA is history. If we sell off on Tuesday, watch to see if CMF dips into negative territory on the hourly chart and STAYS THERE... we briefly tapped 0 at the open on Friday despite the big gap up.