Market tops are often sideways affairs that shake out all but the most fervent bears. I would be remiss not to mention that I am having doubts myself about the downside. I don't see the potential for meaningful upside, but we could get a bump higher due to the turn of the month. I don't believe any such bump would be the beginning of a new move higher but rather just just more fluff for when a correction finally arrives.

I have been modestly net short and wrong for over four weeks now. Luckily, the long side of my portfolio has performed fantastically and I have done fine, even though I have not been keeping up with the Dow Joneses. If we get a move lower today or tomorrow I am considering going mostly to cash and taking a fresh look after the turn of the month. Hopefully, this post marks a market top. It wouldn't be the first time.


Anonymous said...

Don't fight the fed.

It's the number one reason the markets continue higher.

I trade modestly. I work with people who don't "trade" at all. They were commenting just the other day how there tsp has gone up so much last quarter.

The wealth effect is real. People will be spending more and INVESTING again because they feel everything is better.

It will last as long as the Fed keeps buying.

And if unemployment does really improve...look out. You didn't miss anything.

Tsachy Mishal said...

If only the market were that easy.

Anonymous said...

The last April downturn was the same. Smart commentators/bloggers highlighted why we have extended to far and how we are on the verge of a big drop. Then for 2 weeks or so the market didn't oblige and kept crawling forward. All of the smart bears got tired and it was only the very few who probably had given up on their positions that caught the top.
Now I don't believe this is an April type decline, but if this market is to move much higher in any meaningful way, surely it needs to clear the excessive bullish sentiments and moving averages by at least dropping and tagging the 50 dma's, what do you think? I mean a 5% decline after 4 straight months of solid gains worth 25% calls for at least 5%.

Tsachy Mishal said...

You know I agree.

PJ said...

Thanks, Tsachy! It's working!

Can you cry uncle every day?

PJ said...

Sorry, Tsachy, jinxed you.

revelo said...

If it's all about the Fed, then why is gold going down?

No, my friends, this is the same old story of investors with the attention span of a chipmunk. Stocks are perpetuities. Investors should thus be thinking 20 years ahead. Less than 5 months ago (Aug 31, 2010 to be exact), SP500 closed at 1049. But to the average "investor", 5 months ago might as well be a past lifetime. Nothing has really changed since then except sentiment.

The British and Australian housing bubbles have yet to pop, the Spanish housing bubble has popped but been swept under the rug Japan-style. The US housing bubble continues to deflate. The ECB is a conservative and inflation-wary group and will force Europe down the same path as Japan, which by the way is showing no signs of exiting its slump anytime soon. All hopes lies in the Chinese to export inflation. But the masses don't like inflation. Better for the government to throw the wealthy speculators under the bus by curbing inflation, than to risk a popular uprising by allowing inflation to roar. So there goes the Chinese housing bubble, though I am less sure of this than about everything else. Those inscrutable orientals... Weather has been incredibly bad. Again, that attention span of a chipmunk. The weather has a stronger tendency towards mean reversion than anything in the financial world. Expect bumper crops in a year or two, and there go agricultural commodities. On and on it goes. The only hope for the bulls is an outbreak of war. Otherwise, go start at the Nikkei and Japanese bond yields since 1990 to see what the future holds in store for us.

nicasurfer said...

I heard somewhere that the quants can't make money in this type of market and that is what can trigger a flash crash

CP said...

tsachy I think you are right - I am amazed to see that there is put buying and less bullishness now.

Not a good time to stake a bearish position. (Of course that can change at the drop of the hat.)