On a personal note, I want to let everybody know that I may be called away from my computers at a moment's notice, as baby number three -- a boy, to join his sisters Claire and Margaret -- is soon due for arrival. My wife and I are already in the "baby window", judging by past history, so it's likely at some point over the next 3 weeks I'm going to be called away, suddenly and excitedly.
While I'm out, Adam Oliensis will fill in on the Morning Briefings, and we've also got a few other cool things in the immediate works that will -- trust me -- more than make up for my absence.
Indeed, many of you are probably smiling congratulations right now, and thinking to yourself "Why don't you just take some time off right now?" And I wouldn't blame you. It would be hard to come up with a scenario where I could be more wrong about the market.
That's what markets do. They like to smack you around right when you think you're really on to something. This "fading the crowd" gig has worked to perfection for 2+ years, allowing us to rack up some hefty profits without a single loss during this period, but now the market seems hell-bent on exacting a painful revenge.
In the end, there is always going to be risk, and even the best methodologies are going to get roughed up on occasion. This time it's my turn, as well as all many others that were racking up winners during the long bear market. But we're now getting close to the point where I say "Uncle", "Basta", and "You won't have me to kick around any longer...." That is, we're getting close to the hard stop that's in place to safeguard against any one position becoming a much bigger catastrophe. I've got a hard and fast rule that no single Rydex position, or set of two 50% positions, should erode more than about 10% of your allocated speculative capital.
By my rough calculations, which are all that is needed on this score, a daily close over 1024 on the S&P 500 will stop us out of this ill-fated Rydex Tempest position. No if's, and's, or but's. We'll be stopped out, rack up the loss, and move on.
When you put yourself out on the line with specific market calls, you're setting yourself up for glory if you're right, or ignominy if you're wrong. But at all times, good and bad, honesty remains the essential ingredient.
So while the "faders" have been getting worked, the Fantasy camp is gunning for glory. I fully expect to see Joe Battipaglia, Abby Joseph Cohen, and the rest of the perma-bulls soon on the cover of Newsweek. I even noticed this headline on the front page of Yahoo this morning, where they place only a few top headlines for the day: "Stock Rally Expected to Continue." That's a first.
The cruelest trick the market could play right now would be to kick the hype machine into overdrive and suck in all the sidelined cash that's sworn off the stock market forever. It now looks likely this is going to happen.
Yesterday was remarkable, in that the bears were highly skeptical of the rally in real-time, and new bearish positions were logs on the fire for the market to quickly burn on the way higher. This is the exact same pattern we've been seeing all the way up, and it's showing no signs of abating. The bears want to catch the turn on such an overstretched market, and by not embracing the bullish case they are sowing the seeds for further "melt-ups".
It's also interesting that it's not just the bears that are perplexed by what is going on -- not too many of the bulls even know what's happening as far as I can discern, aside from the "reflation" theme and the idea that the market is a leading predictor of an economic recovery. But what strange, almighty force could make stocks, bonds, real estate, oil, and even gold all go up at the same time?
I read a very interesting theory on this yesterday in the Wall Street Journal. Perhaps it's the rapidly plunging U.S. dollar that is the root cause. As the dollar whooshes ever lower, asset prices are naturally adjusting to reflect this fundamental shift in value.
It's also worth noting that if you are in Europe right now, you've got a vastly different perspective on the current market environment. To a European, the Dow is down a good bit on the year, and the overall picture is far-from-optimistic. The rise of the Euro has them seeing things from quite a different perspective.
It's becoming ever more apparent that Alan Greenspan and the Fed are now caught up in the biggest financial gamble in the history of the world. I'm absolutely certain that most people have no idea what's even going on here, or the potential fall-out from this gamble. The best scenario is the Fed is successful reflating the economy out of the current "soft spot.". But the worst-case scenario would make the recent telecom and Internet wipeouts seem like pleasant memories. The worst-case scenario would involve the Fed having to bail out the entire exploding mortgage market, and deal with the destabilizing chaos attendant to that.
Now, I'm not advocating this stance. Please don't get me wrong. But I want everybody to at least know what the worst case scenario on this huge experiment with credit could look like. The link will take you to a remarkable essay by Doug Noland called "Contemplating the Evolution from The Way We Were to The Way It Is". You'll find this essay below his weekly credit market re-cap. It's long, so you'll need about 15 or 20 minutes to get all the way through it.
In the markets, it's always a good exercise to at least read about what the flip side could look like, especially when things are this rosy and bullish.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Drained 3 points to 6% full of negative sentiment on Monday. Nothing new here. The market goes up and the tank holds near to empty but has not drained completely. A bullish divergence that has sustained for almost 2 months.
SHORT-TERM: Hourly gauge is still in neutral but now with a bullish bias
MID-TERM: In neutral at 28/27. There is no momentum to measure in the tank on a daily chart so this gauge is not helpful right now. Our Confidence Diffusion Index measures ZERO as a reflection of that absence of momentum.
LONG-TERM: Weekly gauge has flattened out at a high level. In neutral at 95/5. Our Weekly CDI is also atZERO.
BOTTOM LINE: With both the VIX and 20-dma of the Put/Call Ratio both having flattened out into completely trendless states there is almost no delta (change) to measure. Given that the normal state of affairs is an inverse correlation between the tank and the price of the SPX (better than a -0.85 correlation over time) the "flat" tank with a rising market has to be considered a bullish divergence. And it will likely remain so until we either see the tank drain all the way down to ZERO or break out over the 13-14% range.
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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