Okay the futures are soaring on Chinese inflation and output data. And here I am stubbornly sitting on my shorts. It is stupid and yet I know that is the right thing to do. At least for now. I am 50% cash and 10% long to complement my 40% short positions.
My initial plan is to stand tall against crushing waves of the ape-shit long market this morning. If I start peeing in my pants, I will liquidate some of my shorts or trade for some very short term long positions. This is just so that I can make or preserve some coin before the tide eventually pulls back, and my shorts are vindicated.
Bottom line, I believe we will not go way too beyond SPX 1125 with the mean reversion effect still in place. Sentiment is riding high and it will start behaving like a giddy teenage girl tomorrow morning floating in the bubbles of China data. Of course I know that some of the China data is completely manipulated, especially the 3.5% inflation. It seems like a joke. Look at the individual components and you will know what I mean. Welcome to communism.
But the markets don’t give a fuck to this or any tin foil hat theories. And so the futures are rising as a result of that very data and because the uncertainty regarding some more banking regulation from Basel committee has subsided. In fact, I predict that bank stocks are going to jerk off just looking at each other this morning.
Here are a few more things to consider both sides of the coin:
Bull Case
- Triple Witching Expiration week. Per Schaeffers Research, this week has a 72% likelihood of returning positive returns.
- New NYSE 52 week highs have been trouncing the new lows for several days in a row now.
- Momentum in various indicators.
- None of the long leveraged ETFs are giving overbought signal. Normally this means that they will continue with the aid of momentum.
Bear Case
- Various sentiment readings are towards the high side and soon going into the giddy teenage girl stage.
- One of the esoteric signals – the lunar phase is pointing to a flat to down period this upcoming week.
- There has been more volume on down days than on up days since August 1.
- September seasonality.
- Macro risk – Retails data will be out this week.
- McClellan Oscillator reaching its upper band.
My conclusion
Market should rise and peak out in the next day or two, if not sooner and in an extreme case scenario, till Thursday. If I was day trading I would most likely buy some sweet ass TNA to pair nicely with some TBT and then sell it in the course of 24-48 hours monitoring the direction. After that, momentum exhausts and we are back in the mean reversion. Longs rejoice while you can.
I remain primarily short along with a healthy cash position and selected long positions. Let the bulls charge at me!
StocksRider
Good for you, I am with you, although i am sweating as leveraged a bit too much.
You are an intermediate term bear. You should be expecting many hits to you because of the range bound mode still in place. If you are sweating, you are exposed way too much. I suggest offload your shorts a bit or add long hedges.
I’m with you on this one too!
Welcome back, sir.
Thanks Rand.