That's the difference between where the S&P was Tuesday morning, when I warned "The Joke's on You if You are Buying this Rally" and where we are now. We had a small sell-off at the open but then back to rally mode into the Fed but now that the Fed is done, we're back to shorting and I just (7:44) put a note out to our Members for some shorting levels to watch on the Futures:
By the way, I'm liking TF short if they fail 1,050. Lined up with 17,750 on YM, 2,075 on ES (also a short) and 4,685 on NQ – you know the rule – the other 3 have to be below and we stop out if one crosses over. /NKD 19,500 also a short if they cross under (and the others are under).
As noted Tuesday, we expected a bounce to at least 2,040, which was a strong bounce per our fabulous 5% Rule™ and we were right there at Tuesday's close but the Fed's mild rate cut and doveish outlook kicked it up a notch into yesterday's close but, as noted by David Fry:
There’s a major disconnect between Yellen’s rosy view of the economy.
In that regard she often repeats her ongoing view of economic conditions as “solid” and any negative conditions as “transitory”. Yet economic data over 2015 remains quite weak. Just today gross Mortgage Applications declined (-3% vs prior +0.4%); Industrial Production fell (-0.6% vs prior .04%); PMI Manufacturing Index Flash fell (51.3 vs prior 52.6) and Crude Oil Inventories rose sharply (4.8 million bbls vs prior -3.6 million bbls). The only gain was an increase in Housing Starts (1.175M vs prior 1.062M) and permits aren’t valuable since many don't move to “starts”.
Yellen continued to forecast greater future economic growth over the next two years citing better and growing labor conditions. She mentioned but brushed off the weak quality of both limited income improvements and large amount of part time work while not addressing the number of people out of the work force. Her and the committee’s forecasts for both inflation and economic growth as just guesses. Further while acknowledging weakness globally, suggested the strong (“solid”) U.S. economic growth is helping global markets grow. (That was laughable given weak overseas economic conditions.)
No matter since markets rallied sharply given investor views that “accommodative” remains the order of the day.
That sums things up very nicely IMHO. We'll see how the year plays out but, on the whole, there's nothing thrilling about managing a flat-line for the year - especially when it comes only on a last-ditch effort to boost the markets higher in the fall as ALL the Central Banksters got on board with more promises of endless FREE MONEY for the markets.
Why then, are we bearish against all this "good" news? Well, because we're back at the top of the range in which we believe the market can function as 2,100 on the S&P is simply too expensive for rational investment (based on what they actually earn) and, therefore, we're a lot more comfortable going short at this mark than long. See - that's not a complicated system, is it?
It's a system that's served us very well all year as shorting the S&P around 2,100 has been FREE MONEY for our Futures trades - as well as our hedges. There's a minor bullish channel at 2,000 for the quick money but, as I noted on Tuesday - that's no reason to go long on stocks up there - and then there's the major bullish channel at 1,850, which is where we buy most of our longs (we do have plenty, but they are long-term) and where we sell most of our shorts.
Go back and read our entire year of posts - this has been our simple, consistent message throughout. We've been able to consistently nail the moves on the S&P because we are FUNDAMENTAL investors who use VALUE as our primary means of determining which way things are likely to go. Because we understand the real value of things (and that does change when things like Fed rates change or stimulus is added), we make a lot less mistakes in our trading - especially chasing tops or bottoms of the moves. When 2,000 breaks up or down - that's a strong signal to us that we've got a ride back to the top or bottom coming but when we're at 2,070, like this morning - our risk is 30 up vs 70 down, so bearish bets make more sense.
In today's case, there was a massive confluence of bullish news yesterday that was coordinated with the rally to give us a huge pop into and after the Fed. Using the time-stamps from Seeking Alpha, here's a summary of all the things that helped the market go higher yesterday:
- 02:13: Bye-bye crude export ban - boosted energy sector
- 04:23: China central bank forecasts 6.8% growth in 2016 - boost for all emerging markets and Japan, Australia, commodities
- 04:49: JPMorgan: "Tempered optimism" toward high-yield next year - boosting Financials at the EU open
- 09:36: Goldman: Ballooning junk spreads not a broader worry - boosting Financials at the US open
- 09:50: Homebuilders on the move after strong housing starts - they weren't actually that strong
- 9:52: Solar stocks soar as Congress proposes extending solar/wind tax credits - oil and solar boosted on the same day!
- 10:08: Deutsche: BofA "purest play" for rising rates - hammering home the message that rising rates are good for Financials
- 10:41: Chevron wins $28M judgment in latest twist to Ecuador pollution case - don't mess with oil companies!
- 11:16: Star Wars buzz helps lift CKEC, AMC, and IMAX - the force is strong in this sector
- 11:24: Chevron upgraded to Buy at Argus, as oil volatility creates better entry point - sure oil and gas at 20-year lows is a great time to buy!
- 11:36: Alcoa a top idea for 2016 ahead of split, analyst says - cheers up materials sector
- 12:13: Investors appear to like Valeant's Investor Day presentation; shares up 9% - boosting all of biotech
- 12:52: Goldman re-crunches numbers, raises estimates for 'Star Wars' - good news from the dark side
- 14:08: Fed projections: 1.4% Fed Funds by the end of 2016 - softened the blow of the rate hike
- 14:18: Credit Suisse ups Baidu target to $251, likes restructuring - lifts whole sector
- 14:24: Mortgage REITs rally as Fed hikes - that was unexpected
- 14:33: Wells Fargo first to boost its interest margin - more good news for Financials
- 13:41: Yellen: Factors holding down inflation to fade - nice spin but show us the data
- 15:17: Yellen: Expansions don't die of old age - neither, apparently, do Fed chairpeople
- 15:45: GE +2.9%, predicting up to 15% gain in operating income for 2016 - interesting time to make that announcement
- 15:47: Yellen: No sure path of hikes - maybe they go negative - yes, she actually said that!
That, my friends, is a WHOLE LOT of market-boosting news at one time. I'm not a conspiracy theorist so I won't draw any conclusions from the timings, spacing and sector-diversity of all these positives all coming on a critical market day ahead of a Fed Rate hike - it's just a perfectly natural coincidence that just happened to work out really, really, REALLY well for the market manipulators.
Still, given that the S&P ONLY managed to make it to 2,075 on ALL that fantastic news and a dovish Fed that's bullish on the economy but doesn't see an inflation (or deflation) threat ahead and isn't bothered by record-low workforce participation or record-low wages as a percentage of GDP or (in Yellen's own words) a weak global economy - it seemed prudent for us to get back on the bear side of the equation. Hopefully we don't fall too fast and I wouldn't even mind a move back to 2,100 so we can properly press our shorts into the weekend.
On the whole, you REALLY do not want to be over-committed long or short into the holidays - but especially not long. CASH!!! is our favorite investment at the moment and US Dollars are up 10% for the year - so who can blame us?