I'm not in love with the market here.
First and foremost, I am tired of token hot women on CNBC. Really? I mean, REALLY? Second, I am not to be considered a great market timer. I accept that at this time I do not have the experience to manage that kind of feat.
All that noted, I don't like the market right here very much, and I'll share why...
1. Wall Streets net long position in oil futures is at a record high.
2. Oil has good momo
3. Oil has "a good story". Whehter hte story makes sense or not doesn't matter, its whether it has basic sex appeal on a quick listen. Tech had a great story. In early 2009 negativity had a great story. "a good story" has alot of power, and right now oil is an easy 1 or 2 sentence sell.
4. so I think the risk of an oil spike is tangible. Its also worth mentioning that fundamentals don't really support prices up here, and as bullishness on oil reaches some extreme highs, that does set us up for a drop at some point. But the risk of 1-3 above creating a self fulfilling prophecy for a time is tangible, and taht could easily send the markets down.
5. Treasuries have been quitly rallying for awhile now. That was one of the warning signs of the correction last summer.
6. The leaders of the recent rally have backed off alot. Commodity and momo stocks (nflx, amzn, tck, fcx, etc.). That was one of the warning signs last April also (it was financials then)
7. The market is simply due for a good solid face-slapping
It could go either way, in my view. So I am not deploying my cash hoarde at this time. In fact, since the recent downturn began I have bought some hedges and been a net seller. I did add to my short positions in some levered bear securities... but those are a different kind of trade and not for the faint of heart.
So, for now, I sit. I may buy some hedges into a "first of the month" rally tomorrow.
I am more than willing to wait for the correction I have been looking for, as I know exactly what I want to do into it... I just don't think last week was the correction I was looking for.
As a parting thought to this fairly useless set of comments... April 2010 had several interesting things that lined up before the summer panic began:
1. treasuries (still the worlds biggest flight to safety asset) bottomed before the market turned down
2. the leaders (financials then) stalled before the broader market did
3. several commentators worth listening too had warned of volatility spike possibilities including "The Fly" and Jeff Saut
4. the market exhibited some significant up/down chop (the hard selloff on GS news, then an immediate rally to new highs, hard selloff, brief strong bounce... and then the meelee began in earnest
5. the markets flipped out, very briefly, over govt debtand finances, but then simply ignored it for a long period of time and marched higher. Then, interestingly, that was exactly what they flipped out about all summer.
6. Deflation had been a quiet whisper over much of 2010, but over the weeks before the panic (which ultimately manifested itself as a deflationary scare) that whisper had grown to a hum...
I think the key to catching a downdraft in the market is to lock onto that quiet whisper as it grows to a hum. We have seen over the last 2 years that people yelling "overbought" is a poor indicator of a top, we've seen that momentum can go on for a great long while. But have we also seen that quiet whisper-to-hum be a good predictor? Was their a bullish whisper growing to a hum in early 2009?
Maybe. Prechter suggested covering shorts, Kass called a bottom, "The Fly" suggested buying for a bounce, Riholtz suggested buying, economic data had shown some signs of stabilizing, several of my stocks had rallied hard after earnings only to go back down with the tanking market. Frequently bearish Art Cashin commented that we were due for "one heck of a rally". Maybe, if I had been more in tune with things and not so "green" I could have spotted that whisper-to-hum.
What is the whisper to hum today? Honestly, I don't know. But if crude drops, the market rallies, and mid-east tensions go on for awhile with Wall Street ignoring them, that may well be a signal to act more aggressively with respect to hedging and preparing for a possible return-to-focus of Mid East tensions. Maybe the interim between Egypt and Lybia was already that window-to-prepare, and I somewhat missed it.
I know that is extremely intangible - this whisper-to-a-hum talk - but its someting I've been thinking about since last summer. I caught, from reading blogs and stuff, the growing hum of deflationary talk. I didn't act on it or properly prepare then... I will honestly say I haven't caught any of that whisper-to-a-hum vibe this time around, except... maybe... the whole rising commods leading to a slowdown discussion.
It may pay to prepare if we get a significant lull/distraction from the "rising oil" fear.