Last week I made an on the fly single take video called "The Anatomy of a Bull Market" to sort of settle the question most had in relation to their trust in the latest bull run lasting. I heard many call it "a bull market" without knowing what that actually means. So hopefully this post can help clarify this.
Per Investopedia, the definition of a Bull Market I can agree with. It's - "Bull markets are characterized by optimism, investor confidence and expectations that strong results will continue." Well right there, the doubt people have in it being a bull market is sort of counter-intuitive to the very definition of a "Bull" market which is pinged with words like confidence and expectations not... fear and doubt.
So trust me when I say that this isn't a bull market...at all. It's maybe a bullish run, but there will be many months of psychology that has to play out for that confidence and higher 52-wk highs in the SPX... if it even were to happen. So to reiterate, this is not a bull market whatsoever. And if there was one that was to emerge from this--we won't know until later this year when it takes that long to even get to new highs.
Now I'm still highly bearish on the market, and technically I believe we are in the start of a bear market...which is characterized by "widespread pessimism," which all this doubt people have in prices now lead me to believe. A bull market you will know it's bullish...that video will show you how you know. And until we know it's bullish, it's bearish.
So let's look at the tickers, shall we? SPX today traded right up to that "B-resistance" in the video just as we predicted it would days before. And then it stopped. The VIX fell to new seven month lows as volatility continued to decline in this low volume creep up to that pre-determined resistance. Here's another way to see it in the SPY itself.
Now to compare with previous bull markets, here's the chart from the video. Historic bull markets take a long time to break out of the bearish resistances, "c" first, "b" second, then finally "a" to reach the previous 52-week high for that one final test. So right now, we are at the "b" resistance. The path to A could be months even if it happened. The plateaued low-volume SPX and the lowering VIX tells me that trading has all but dried up and people are just waiting nervously for that first person to sell off in a panic. The mutual waiting however might end up being the lubricant for the SPX to slide up even higher in the next day or two before that inevitable correction happens to retrace this last leg up--1980 then 1925 I'd say before a second attempt to ride up to try to break B for good. As in... it's going to be chop for a while so don't expect a raging bull move or bear move to just emerge overnight. The deciding factor will come somewhere like...
here--Scribble Chart Junior. showing the psychology of where that decision will actually be made. There will be a downward move in the SPX within the month, that's inevitable and just how trading is. This move up from 1800 will have some selling. Where that selling stops the market will start to battle over the question "is this the final 1850's-ish dip I should buy at for the long bull ride up?" or "Time to be the first to GTFO so I'm not bag holding for 3 years waiting to get back to 1850's-ish"
Here are some fundamental drivers and to me the two main fundamental drivers of this latest bull run. Corporate junk bond buying and HYG short covering and the seasonal bullishness in WTI Crude which should be rounding off and turning bearish again before June/July (as long as no OPEC production cuts are announced). I'm actually thinking oil might take a quick knee-jerk downward within the next two weeks before attempting to retest these low $40's levels, flattening off, then falling for good again in July.
Oil's bullishness is all things seasonal, as OPEC is only spinning rhetoric--nobody is cutting or adding to production with words like "freezes" and "ceiling changes," things are just staying the same--which for years we've all agreed is bad. The US is looking to revive the shale game and Iran is gunning to produce 1 mmbbl/day more, so the glut isn't going away any time soon. And on the junk crisis, as soon as the first few debt-burdened companies / small caps has their credit deteriorate or a few Chapter 11's are announced in the news...all it takes is that one catalyst to confirm everyone's fears that this in fact was never a bull market, and you were right all along.
Things need to fall before they rise, it's the cardinal rule of trading. Buuuut... they also need to rise before they fall. So a few really green SPX days to puncture that B-resistance before a reversal might just be the case--just like we saw in early 2011.
Cash might not be a bad idea right now until all of this chop plays out. Trade well, trade safe, and as always--stay liquid my friends.
Submitted March 21, 2016 at 08:09PM by gabriel87120 http://ift.tt/1Rw2ROQ
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