SP500, time to come off its lofty highs
the sp500 has had a huge bull run, with recent run led by biotechs and computer software. The situation has led to insanely frothy conditions and very high optimism the last couple of weeks, although that optimism did slightly wane during the recent pullback. But here are so key points to keep in mind from a technical perspective:
1. Haven't touched 50wma average in around 430 days. this is longer than any other run excluding run directly following a bottom.
2. The sp500 has recovered over 170% in 1820 days. The last run, from the insane tech bubble collapse, lasted the same amount of time with a 100% gain.
3. the gain since breaking all time highs of previous years is 21%. But, is everything really better? weren't companies already massively overvalued in 2007 to begin with? its hard to say conclusively, but at the same time its hard to justify these returns on a substance basis.
1. Ukraine situation might cause FUD (Fear uncertainty and doubt) which might magnify otherwise petty or already priced in problems out of control. Of course this all depends on what happens going forward.
2. the effect of the taper, as well as potential anticipation for a future one might be starting to get priced in. This run up this past year has been arguably almost completely fueled by quantitative easing. In some sense from a future perspective the market has seen to get ahead of itself: its painting a rosey picture when the situation still seem uncertain.
3. Tax season coming up and the previous year and a half having massive run-ups could fuel people to take profits or cut back. Fears of further taper or Ukraine could continue to push people to take more profits. Although since QE will probably continue to rage the effect might not be crazy, but it will effect outlooks.
Conclusion: Ukraine situation, tax season and taper fears might all come together to potentially drive markets down. From a technical perspective markets have gotten way ahead of themselves too fast, and while overbought indicators aren't screaming, markets are trading way above their moving averages. Economic recovery still seems uncertain as well, as some are blaming it on the weather, others on what is going on.
Prediction: I expect a pullback, espcially if ukraine sitaution gets tense, to/around the 1720-1760 area come the next 2-3 weeks. at this area, depending on developments, espcially and crucially what the fed chooses to do and what Ukraine looks like we could have a small rebound, or worse case scenario, although highly unlikely, situation gets more tense and fed continues to taper. Regardless I feel pretty safe shorting the markets after such an unprecedented run and would do so by buying BIS, SQQQ or SDS. If you like to bet big, you might feel better playing TZA
Sat Mar 1 07:38:49 2014 UTC