I feed myself a nice, healthy diet of confirmation bias in the form of various websites. Some sites, like CNBC, are naturally cheerleading the bulls nonstop, whereas the sites I tend to read, like ZeroHedge and Elliott Wave International, used to be more of the perma-bear stripe. Even those latter sites, however, have jumped fully on the bull wagon of late, with ZeroHedge in particular hawking 4100 as the S&P 500’s destiny.
I’m a dumb old bear, but I’m not a financial masochist, so I don’t just put my hands on my hips and take the abuse, which is why I raised cash early yesterday to about 25% of my account. I endeavor, however, to only eliminate positions that seem particularly vulnerable or whose patterns have failed. I do not think, not for one second, that 3500 was the bottom for this bear market, and I am content to keep my bearish positions in place even in the face of a temporarily hostile environment and wait for yet another idiotic rally to blow over.
Many reasons are offered as to why it’s up, up, up, from here on out for the market:
- Massive corporate buybacks, starting the moment the buyback window reopens next week;
- Extremely negative sentiment;
- High cash levels;
- “Hey, that wasn’t so bad” summary of the earnings season, once it is past;
- Strong seasonal bias toward upside;
- Relatively low fundamental valuations, compared with the insanity of early 2021
Indeed, yesterday morning was the most positive TICK value in human history when the market opened. Basically, every single stock was up. In my entire Bear Pen watch list, not a single stock lost a penny on the day. So it’s no surprise that all the bears have vanished into thin air.
I do not believe as ZeroHedge does, that theS&P 500 Futures is simply going to zip to 4100. I do, however, think that around 3800 is a very sensible target, since it represents a major Fibonacci level and has exhibited power as an exhaustion point before.
Yet, as I look at the likes of the Nasdaq 100 Futures (shown below on a longer-term basis), there is nothing about this chart that screams “bullish base.” Instead, the chart screams, “I am holding on for dear life, but I’m at the edge of the precipice, and one mishap could send me crumbling.” The popular habit these days is to simply draw a straight line from present price levels all the way up to about where that blue circle is, suggesting a nice, clean, zig-zag pattern down, with the bulls running the show until they meet that trendline. It’s possible, I suppose, but I’m not banking on it.
The commodities markets, unlike equities, seem to be illustrating the weakness of the global economy better than equities are. Yesterday morning, for instance, I wrote to premium customers that gold’s very strong lift was probably going to exhaust itself at its own horizontal, and that is precisely what it did. My old buddy crude oil has also proved itself to be far less robust than equities, as it drills its way lower, step by step.
The biggest risk for the bears (if I dare use the plural) is, of course, a repeat of the June 15-Aug. 15 hell-fest. Looking at the bonds below, by way of symbol /ZB, I’ve offered up the notion that bonds will experience the same strong counter-trend rally as they did in that period, since, as on June 15, they have been beaten to a pulp. It’s not impossible, but my view is that we get a miniature version of June 15-Aug. 15, not a full-blown rerun.
When I wrote this post, it was about an hour before the opening bell, and every single futures market was bright green. All the equity futures were up over 2%, and it’s happy-days-are-here-again in bull-land. The overall feeling is that the bear market of 2022 is completely done, and everyone from Cathie Wood on up can now enjoy the good old days of new highs every single month. I’m not in that camp. I remain my not-expiring-until-next-year put positions, and as we reach what I believe are important levels of resistance, I will be deploying my cash balance into new positions or increasing the size of existing ones.