Caution To The Wind

I am seeing abundant signs that investors are throwing caution to the wind. This type of behavior would normally take me to a net short posture but the very strong seasonality has me torn. I have seen this type of behavior persist through seasonally strong periods. In 2010 the market came into this same seasonally strong period very extended but did not correct until late April. That said, the signs of excess are so great that I am strongly considering moving to a market neutral posture or getting net short:

  • Rydex traders are at record long positions.

  • Consensus bulls are at 78%

  • The VIX is at a post-crisis low.

  • Many technical pundits who were looking for a  correction threw in the towel in recent days.

  • The pace of secondary offerings has reached a fever pitch as corporations are rushing to sell stocks.

  • Apple gaps up by $5 a day every day than keeps running. This pace cannot persist until late April. This type of behavior is often seen in the later phases of a rally.

  • We are likely to see a big asset allocation out of stocks and into bonds later in the month due to quaterly rebalancing. Stocks are up big for the quarter and bonds are down big.


I am sitting on my hands for now but as we get closer to expiration I will be more likely to move closer to the dark side.

 

5 comments:

R M said...

BAM who has been shorting AAPL for weeks (months?) "sticking with $610-615 target."

Tsachy Mishal said...

I don't understand what you are saying

R M said...

BAM is a bearish shop which tweets a lot. Flip thru old tweets on AAPL and you will understand the point.

https://twitter.com/#!/BAMinvestor

Tsachy Mishal said...

Why are they shorting if their price target is higher? What implication do you see from this?

R M said...

Well these guys see a 3% gain in something, by midday and they have been losing money shorting it for months.

I would say it is capitulative behavior by a behavioralist.