This just isn't looking good. We have no trend and remain stuck in a 4-months long consolidation. Except for a small position I took in TQQQ the other day, I am mostly in cash. What do I do? Go long. Why? Go short. Why? I don't see an edge for either case. Every time it looks like we're going higher, we fail, and every time it looks like we're headed into the abyss, we stall and reverse. For traders, this is a great environment but for everyone else we do not have an answer to the question, "Which way from here?"
Here's what we know: We have closed within 1-2pts of 1863 eight times since January 1st. $SPX is down 1.45pts on the week & 8.94pts on the months and is up a whopping 0.8% for the year. The Cyclicals Index, one of the strongest indexes out there having climbed nearly 100% since 2012 & up close to 550% since the March 2009 lows, got slammed very hard Friday, dropping 1.54%. It's not something you often see happen to this staid index. And the Transportation Index, which put in new highs this past Tuesday & again this past Wednesday, got slammed Friday dropping 1.63%. If you follow the transports, you will often see this kind of volatility, but this is uncharacteristic for the Cyclicals. Any further uncharacteristic selling in the Cyclicals will weigh on the other majors. Part of the reason the Cyclicals sold off so hard on Friday was because of F so maybe buyers will rush in to scoop up Ford at what is perceived as a bargain basement price. Maybe not.
We also know that, based on the the two bull markets of 2003-2207 and 2009 to present, the market has dropped 50% of the time in May as the "Sell in May and go away" strategy comes into play. Yes, there's a 50% chance that May will end in the green but those are high risk odds. Normally traders want to see a risk:reward ratio of at least 3:1 before entering a trade, risk $1.00 to gain $3.00 so 50/50 just doesn't cut it, IMHO.
We also know that while equities and indexes are struggling that the bond market is up 10% for the year. Flight to safety, flight to quality? Hmmm.
Here's what we don't know: Is the current market situation a major distribution phase, are the large players keeping the market propped up so they can exit huge positions that include millions of shares of individual stocks. When the large players exit, they have to do so slowly because if they dumped millions of excess shares into the market all at once, the market would not be able to absorb all those excess shares and the market would drop like a rock. And why would the large players being exiting now? Could it be fear over taper, interest rate increases in 2015? Could it have anything to do with the massive amount of margin debt that has grown to bubble levels?
All I can say now is that cash is a position and until there is clarity I do not see any reason to put my cash at risk.
ES 4 hour chart: gyazo.com/fba3c81b88...cf1186e36323b1c8202d
Be careful & GL in the week ahead.
Here's what we know: We have closed within 1-2pts of 1863 eight times since January 1st. $SPX is down 1.45pts on the week & 8.94pts on the months and is up a whopping 0.8% for the year. The Cyclicals Index, one of the strongest indexes out there having climbed nearly 100% since 2012 & up close to 550% since the March 2009 lows, got slammed very hard Friday, dropping 1.54%. It's not something you often see happen to this staid index. And the Transportation Index, which put in new highs this past Tuesday & again this past Wednesday, got slammed Friday dropping 1.63%. If you follow the transports, you will often see this kind of volatility, but this is uncharacteristic for the Cyclicals. Any further uncharacteristic selling in the Cyclicals will weigh on the other majors. Part of the reason the Cyclicals sold off so hard on Friday was because of F so maybe buyers will rush in to scoop up Ford at what is perceived as a bargain basement price. Maybe not.
We also know that, based on the the two bull markets of 2003-2207 and 2009 to present, the market has dropped 50% of the time in May as the "Sell in May and go away" strategy comes into play. Yes, there's a 50% chance that May will end in the green but those are high risk odds. Normally traders want to see a risk:reward ratio of at least 3:1 before entering a trade, risk $1.00 to gain $3.00 so 50/50 just doesn't cut it, IMHO.
We also know that while equities and indexes are struggling that the bond market is up 10% for the year. Flight to safety, flight to quality? Hmmm.
Here's what we don't know: Is the current market situation a major distribution phase, are the large players keeping the market propped up so they can exit huge positions that include millions of shares of individual stocks. When the large players exit, they have to do so slowly because if they dumped millions of excess shares into the market all at once, the market would not be able to absorb all those excess shares and the market would drop like a rock. And why would the large players being exiting now? Could it be fear over taper, interest rate increases in 2015? Could it have anything to do with the massive amount of margin debt that has grown to bubble levels?
All I can say now is that cash is a position and until there is clarity I do not see any reason to put my cash at risk.
ES 4 hour chart: gyazo.com/fba3c81b88...cf1186e36323b1c8202d
Be careful & GL in the week ahead.