Springheel Jack and I have a couple of things in common with our posts today: first, like him, I want to apologize for being so late. I’ve been very “out of it” today dealing with my totally unexpected new family additions. Second, judging from what Jack said in his post, we both had a “dog” issue stalling us.
Before I forget, a big shout out to Jack for his AMAZING call last year, when he shorted the ES at almost the exact top. From what I gather, he covered today for something like 300 handles on the ES. Good gravy, Jack, congratulations! That is totally amazing!
As for the dogs, my guess is that they were dumped in the park. With one wife, several children, three dogs, six hens, and one big, complicated house, I seriously have enough in my life to handle, so a 4th and 5th dog will send me over the edge. We’re going to look after them for now. Once my children get acquainted with them, putting them up for adoption will get that much more difficult!
OK, let’s look at a chart or two.
Late last week, I figured we had “bottomed”, and I was wrong. My retention of my 50 shorts was wise, and my acquisition of 33 longs was a bust. As of yesterday, I was “pure bear” again and had 75 shorts and 0 longs. I was very happy to be in that position this morning.
Today, however, I felt even more strongly than last week that “this is about all we’re going to get.” There’s only so much blood one can squeeze from a stone, so at this point, I have “only” 38 short positions and 12 longs, with a few of those longs pretty damned big. So I’m actually pretty balanced at this point (suffice it to say that a market crash at this point is utterly unexpected and would really bum me out).
My principal focus, good contrarian that I am, is energy. Take a look at the oil and gas index, and take careful note of how close we’ve come to that major, multi-decade supporting trendline. I never thought we’d get here this fast, but here we are.
Thus, I have pigged out on commodity long positions, including SPDR S&P Oil & Gas Exploration & Production (N:XOP), SPDR S&P Metals & Mining (N:XME), and Energy Select Sector SPDR (N:XLE). SPDR S&P Oil & Gas Exploration & Production (N:XOP), for example, is shown below, and I think you’ll agree that the adjective “oversold” is not uncalled for here.
During the Fed-driven bull market, which ended last spring, what kept the market propped up was confidence. Namely, confidence that the Fed always “had the market’s back”. That confidence grew into gross overconfidence, and even when very obvious cracks began to appear in the market (particularly in high yield), market participants ignorant the warning signs and simply held on until it was too late.
Now that nearly three thousand points have been blown off the Dow Jones Industrials at its lows today (which is gentle compared to what’s happened to the Dow Transports), the market has suffered a loss of confidence. It is this under-confidence which I’d like to exploit by way of long positions.
I don’t know how long it’ll take before the market has healed enough to be seduced into a state of overconfidence again. It will certainly take weeks, if not months, and since I’m terribly impatient, that’ll be tough for me. Having some kind of government stick-save would help matters, of course.
The thing is, the market’s obsession has changed. Back in 2011, it was all about the euro (remember that?) We would actually pay close attention to the Greek parliament. Now, nobody could care less. These days, it’s all about energy. And since I think energy is going to go through a rebound of sorts, perhaps taking crude back as high as $37 or so, there could be some spectacular bounces in this sector. Of course, I’ve said this before and been wrong, so we’ll see if I manage to get the bounce right this time.
Suffice it to say that the raging bear is going to hibernate, and I’m going to be lighter and more balanced for the foreseeable future. This year has been amazing so far, and I’m highly confident that we bears will get another sensational bite at the apple a little later on this year.