This one is for all those dodo-birds buying the perma-bull bull shit.
Today’s dent in the armor must have the bulls biting their nails. Oh my gosh, after a 3 month run on poor volume and breadth, we get our first meaningful break in the short term trend. But seriously, what did you expect? The market would just levitate higher? Just when “they” tell you it is safe to jump in the water, bam, the market falls apart.
If you had been reading these pages over the past 6 weeks, it should be clear that I have been stating that the best gains for this rally are behind us. In addition, in “I am not Sure Why This Time Should be Different”, I wrote: “I don’t believe this time will be different. Mounting evidence shows we are closer to the end of this rally than the beginning. The data suggests that overly bullish and overly valued conditions in the face of rising interest rate pressures should lead to tepid gains in equities.” With today’s gap down, February’s gains have nearly been erased on the SP500.
No doubt today’s “talk” will be all about the end of the rally or if you should buy the dip — if that is what you want to call a 1%pullback. I suspect there will be a long period of “discussion” about the current state of the market, and this “discussion” will play out over the next couple of months. That is, look for a trading range and another market top as we head into the late second quarter. From a trader’s point of view, this means “buying at the lows of the range” and “selling at the tops”. The bulls won’t die hard that I am pretty sure of.
As stated a couple of weeks ago: I believe that we will see “a contained sell off that relieves the over valued and overly bullish conditions”, and “this dip in prices will be bought. This will likely result in a last gasp of speculation, higher prices and a market top sometime in the latter part of the second quarter.”
For those wanting more insight, please check out our “Daily Sentiment Report”. This is what I have been recommending to readers over the past 2 weeks:
1) If you are long, remain long
2) If you are short, don’t overstay your welcome too long in either direction
3) If you are under invested, I cannot advocate chasing prices
4) One, it isn’t my style
5) Two, you need to ask yourself how much reward is there left in this rally relative to the risk