I can tell you that during one of these moves you can just throw out virtually every tool as they all become pretty much useless.
Sentiment didn't work during this period. Cycles stretched to absurd lengths. The COT failed miserably. Technicals were worthless. Overbought was meaningless.
There are two signs to watch for as a clue to an impending top. Needless to say we don't have either at this point and there's no telling how long this could last if it does indeed turn into a runaway rally. The 06/07 move lasted almost 7 months. This one is already 2 months old.
Virtually all markets have now broken through any and all logical resistance levels. 1200 S&P, 11,000 Dow & 2000 NDX just to name a few.
I don't actually expect the move to continue at the same pace as the last two months but it is showing all the signs of an impending runaway rally.
Needless to say shorting something like this is suicide, although I think by now we've all learned our lesson about shorting this cyclical bull.
a simplistic, but reasonable rationale for a melt-up:
ReplyDeletethe bond market is way bigger than the stock market. If confidence in the bond market fails, tons of capital will be available to move into either stocks or cash. Thus the motivation will be more to run from bonds rather than running toward stocks. But stocks are preferred to one's mattress (for now!).
(of course, eventually the shortcomings of investing in companies that don't sell anything will eventually be realized, but that is for a later date.)
I think AAPL proved they are selling a lot of somethings :)
ReplyDeleteThe companies not actually selling anything period died in 2000-2002.
This cyclical bull will die eventually but it will expire when the excesses come back to bite us in the ass. In 2000 those excess were in the tech sector - too many companies with no earnings and no chance of ever having any earnings.
In 2007 it was a bursting of the real estate and credit bubble that brought the party to an end.
Now the excess is in the currency markets. At some point we are going to see something break and that will signal the beginning of the end for this cyclical bull.
when it comes to the currency markets, i'd say that it is in the best interests of the dollar powers to undermine the euro via various means (see greece, etc.), making the dollar the less ugly of the sisters. Eventually, people will realize that they are ALL ugly!
ReplyDeleteI hope not, as I am waiting patiently for a correction in order to deploy the rest of my capital.
ReplyDeleteThe historical chart you post doesn't show many opportunities to get long, does it?
No if the market moves into a runaway move then it appears the standard correction size will be about 25 to 40 points.
ReplyDeleteI think anyone who listens to your prognostications needs their head tested. You were predicting a correction to the Dow the first week of March, and its up at least 450 points since then. Last week you were predicting a gold sell-off and tonight its at $1148/oz. I think the best plan is to do exactly the opposite of what you suggest. Take a long holiday if you have any dollar left and go swim in the sea somewhere hot, then when you get back get a job flipping burghers somewhere, away from a computer.
ReplyDeleteActually I suggested going to cash because sentiment had reached bullish extremes. 95% of the time that kind of sentiment leads to a significant correction. It certainly did in January. But if the market decides to move into a runaway type advance then all bets are off and like I said we can probably just throw out all of our tools as none of them work during these kind of moves. They certainly didn't in 06/07.
ReplyDeleteGold was just due for a move down into a daily cyclew low. I would say the decline from $1170 to $1124 qualifies.
So no parabolic blow-off in the SP500 then? Your chart shows a grind upwards of only 100 points over several months.
ReplyDeleteI meant if you start from a couple of months in...
ReplyDeleteWithout a crystal ball there is no way of knowing what's going to happen. The 06/07 runaway move tacked on 200 points in 7 months.
ReplyDeleteSo far this rally has gained about 150 in a little over 2 months, although it remains to be seen whether it will develop into a runaway move. We would need to see the market move to new highs first and it hasn't done that yet.
You look at the chart in 2007 and you will notice during the run-away move, the RSI would still go down to RSI=50 periodically. This move since Feb just didn't afford anyone an opportunity to enter. Its RSI just consistently stays above 70, contrary to the run-away move in 2007.
ReplyDelete