Window For A Decline

As of last week, the Market Climate for stocks remained characterized by strenuously overbought conditions, strenuous overvaluation, overbullish sentiment, and hostile yield trends. If one was making a bet, and the payoff to the bet was simply whether the market will be up or down in the coming few weeks, it turns out that the raw probability of an advance in these conditions is greater than the raw probability of a decline. However, this does not reflect magnitudes. The probable gains are characterized by the likelihood of minor but successive marginal new highs. The potential downside risk is smaller in probability, but considerably larger in terms of magnitude.
- John Hussman in his Weekly Market Commentary
The market continues to defy the odds by grinding higher despite sentiment extremes that have previously led to meaty declines.  The only thing that has changed since I left last week is that seasonality is no longer as strong starting today. While seasonality is positive through the balance of the month, the strongest part of the month has passed.

There is a window for a decline in the coming days as seasonality is no longer as strong, but generally we have not seen large reversals before options expiration. I continue to believe that the best setup for the short side would be in the latter part of April, after options expiration.

I have had a small net short position from a little above the1160 level on the S&P 500. At the moment I plan on maintaining that posture. However, if the market holds up into late April I plan on ramping up my short positions.

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