No matter how many times I play peekaboo with my son, he is still surprised when I pop my head out and yell peekaboo. Watching the markets recently is liking watching a game of peekaboo. Analysts low ball estimates that they know companies will beat the estimates. They know this because they basically take the estimates from the company, who know they will beat. And market participants are surprised when companies yell peekaboo.

The phrase "Buy the rumor, sell the news" does not seem to apply to this market, as market participants act like surprised infants. While I decided to stop fighting the market by moving to a market neutral strategy (long pharma/short SPY), I have no plans to throw caution to the wind and join the party.

I can't help but think that the market is seducing every last player in before reversing. I am getting close to the point where I would be willing to move to a net short position again but I am waiting for the Wyeth/Pfizer transaction to close before doing so. The deal should have closed already but a bureaucrat somewhere in the DOJ has been too lazy to rubber stamp the deal. Until then I am sitting on my hands and waiting.


Anonymous said...

Bank earning are baked into the cake, futures are no higher now than they were before the JPM release. We are still skating off of Intel's numbers.

Retail Sales and Industrial Production will determine whether we hold new highs or not. There is a good chance we get 1% or so new highs and then a big reversal in my opinion. We should not hold Dow 10,000 on the first try in any event.

2% break above previous high and all bets off.


caveman said...

I'm not sure how market neutral long pharma / short SPY is, given that pharma is typically a defensive sector? Yes, pharma has underperformed but so has energy. I would think long energy / short spy would be more neutral.

Tsachy Mishal said...

Thats true caveman. The position should do better on down days than up days. Pharma moves with the market but is lower beta.

Tsachy Mishal said...

Even though technically you are correct. I believe that even if the market goes higher pharma will outperform.