Marketview: Start the Topping Process



Welcome to September volatility! This week was a short one, but still managed to cram in a boat load of Central Bank activity, the NFP report, and a 30-handle range. Even the prospect of war couldn’t keep the market down for long which indicates that risk appetite remains healthy. Plenty of opportunities for smart stock pickers and even some for dumb stock pickers. If you happen to be in the right stocks (overweight social media), this market feels as if you can do no wrong. Enjoy the market and trading environment now because it will not stay like this forever.

To be clear, I think we are in the middle of a bull run measured in decades. That doesn’t mean the market has shaken its ruthless habit of surprising investors with a good ol’ fashioned 30% correction. Risk appetite is still high, and I’m not smart/dumb enough to call a top but traders need to recognize the asymmetry in risk at the moment. First, even the most ambitious 2013 price targets for the S&P have been achieved or seem completely rational. Think back to when the 1700 and 1750 price targets first came out and how ridiculous they seemed. Now, there’s no one left to make a believer. Secondly, the cult of equity is back in the wake of S&P price performance and the bond bubble bursting. I hear every day about how “bonds are stupid” and “do you have any idea about the tail risk in fixed income?” I rarely hear about how you can get the shit kicked out of you in equities anymore. There is nothing quantitative about this. Consider it the trader equivalent to the old man feeling the weather change in his bones.

What’s missing from any bear thesis at the moment is a catalyst. I don’t see one right now, but markets have a convenient way of producing one when the time is right. I highly doubt Syria is it. The market is strong and topping out will probably take months. My feeling is that investors will want a reenactment of the last couple first quarter performances, so I anticipate that January and February could be a setup to spank a lot of people. Plan for the winter when it’s still sunny, not when you’re buried under ten feet of snow.

Healthcare, energy, and basic materials got all the love in the rebound this week. Consumer staples, technology, and utilities lagged the market. Social media continues to crush. $TSLA has been the mascot for risk the last couple months. $YELP is the new torch bearer but not nearly as good a tell. What do I expect next week? More volatility, more opportunity, and record views for the Statfor YouTube channel.


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