Hedge_Of_The_World

Bulls High as a Kite on Optimism

Short
AMEX:SPY   SPDR S&P 500 ETF TRUST
US Futures drifted higher in the overnight session, with the S&P hitting a fresh all-time high of 3,859.62. We saw continued weakness in the labour market this morning, with jobless claims coming in higher than expected ( exp 845k) at 900k, and over 5MM continuing claims persist. Not that the labour market has anything to do with this super cool new MMT economy. But, I figured I'd mention it nevertheless.

Vix saw it's key ascending trendline break for the first time in almost 8 weeks. This may come as a surprise to many volatility traders, but as we mentioned in our live analysis yesterday, the Vix contract rolled over, and absent any negative inauguration outcomes, which was always unlikely given the incredible military presence in washington, there was potential for VIX to be sold off similar to what we saw in November. So said, so done.

I'll be watching Vix closely today to see if we get support at the post March crash low, and then potentially accumulating more UVXY sub 10's. Risk protection is cheap in my opinion, and stocks are not just overvalued, that would be one thing. But, stocks are at all-time high's, with the QQQ's hourly RSI just below 85. That's extremely overbought folks. I've been looking at the Bollinger Bands a lot more lately, and I've noticed that in many cases, in the past week or two, we've seen a standard deviation of up to 3, struggle to contain the euphoric price action. This isn't going to last forever, as we all know, and so I will continue to position for the worst case scenario, and I won't let greed overwhelm my investing and trading principles.

Key levels to watch on SPY today are the all-time high, of course, near the green ascending trendline around 386, the upper band of the white channel around 380, and the 21 day EMA around 375. I'm keeping an eye on the dollar as well, as we've been expecting a breakout off the back of a potential inverse HS pattern , which could be about to materialize. This would coincide with a rise in yields, which should also see the 10Y yield breakout to the 1.25% - 1.41% range. As always, I appreciate your time today guys, and I hope you enjoyed the analysis. Cheers, Michael.

*I am/ we are currently holding positions in UVXY , HUV , HQD , QID .
For our live daily market analysis, visit us at http://www.hedgeoftheworld.com The information and analysis shared in this post is not financial advice. Always conduct your own analysis and research.

Comments

I did some research last night, if the SP500 manages to continue its rise and get to even 3900 by march that would represent at 78.82% increase sing last march's low of 2181. The next highest rolling average occurred in June 1983 up 61% since the previous June. To put this into perspective in June 1983 the SP500 was 171.6. Meaning the SP500 increased 64.6 points over a year. Keep in mind the SP500 underwent a large change in spring of 1982 as that is when future began being traded on the Sp500 leading to the unusually large increase over the next year. My point is this, this increase is highly abnormal and a correction is bound to occur. I think I'll continue to pick up some insurance because as you said its cheap at the moment and a correction is highly probable its not a question of if just when.
+2 Reply
stonkasaurusrex kretchfoop901
@kretchfoop901, What "insurance" are you looking into? I also subscribe to the same believes as you and Hedge of the world but right now buying inverse sp500 and dow etfs is about all I know of. If you have other ideas I'd love to hear them!
+1 Reply
kretchfoop901 stonkasaurusrex
@stonkasaurusrex, I like to use volatility, mainly UVXY as a good hedge and you may want to look at or consider a bear etf. I like SPXS which is a triple leveraged inverse ETF that mirrors SP500. It is pretty aggressive using both so trade accordingly. Almost half my portfolio is dedicated to hedging at the moment. I have cash on the side where I will most likely add to my positions as time goes by. Just be careful with using these hedges as they have a decay over time. So far my hedges aren't doing so well the last month but I'm hoping they will turn around by march or so at the latest.
+1 Reply
Thanks for the analysis again, been following your posts and all replies with great interest! I am not that educated at marco level and been struggling what to look for as clear red flags for the big next pullback which is inevtiable. Any ideas or pointers on what to watch? Is it VIX rising above a key level in combination with indexes trading down from overbought? Would love to hear your opinions on that. I know there are a lot of signal providers online (like mapsignals or wallstreetcourrier) which try to spot these turnarounds, I just don't know if they are worth the money - would love to educate myself here but don't know where to start.

Also I've read a lot of opinions on how the S&P 500 for instance is overvalued on e.g. a forward P/E basis but shouldn't we take in account that earnings have fallen substantially (typical in recession), while the market has priced in a recovery backed on government support and improving economic data (stock price has risen). This raises the numerator (P) while the denominator (E) falls - thus creating stretched valuations. Companies will grow into these elevated valuations as earnings will improve and lowers the P/E; provided stock prices have topped out. Would love your opinion on this :)
+1 Reply
@SeqZ, Hey my friend, thanks for the comment! I really appreciate the support. I haven't used those sites, and I'm not sure if mapsignals or wallstreetcourrier would provide as much detail as I do on my website, and it's free to join for a limited time. You should join and check out our live play-by-play where we discuss what's happening in markets, as it's happening. We've just implemented comments as well, which are interactive. Going forward I won't be replying on tradingview comments, I'm afraid. I hope this helps, and I look forward to seeing you over at the Hedge of the World website to chat some more about valuations. Cheers!
Reply
I love this analysis. thank you for sharing
+1 Reply
oh boy that come down off that high is hard isn't it my sweet baby bulls
+1 Reply
Would agree with you today, movement seems weak, slight dip possible, but not beyond 3800.

To bears here, consider maybe its not so much about optimism but about what you can do with money. Goods cannot increase in price because people are not getting around spending (low demand), so no inflation. But mannn market is flooded with money, and $1200 paycheck is coming soon. What would i do when i receive the $1200? Buy more index fund of course
+1 Reply
looking another rise in 10-2yields spread today...
+1 Reply
Tomasgei Tomasgei
@Tomasgei, it looks 1% is important level.
+1 Reply
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