Remember: by the end of 2012, many investors were dumping stocks. I myself was buying calls late in the day on that final Friday heading into the New Year's Eve trading day. Stocks rallied that New Year's Eve and continued to rally into the start of 2013. My CAT calls soared, my AMZN calls soared, my VXX puts paid off handsomely. And at the time, investor sentiment was generally rather bearish. For me, trading against the grain worked out perfectly.
Just a few months ago, with the $SPY at $164, investors were again very bearish. The talking heads on the financial networks were telling viewers to sell into any strength. How did that work out for you?
The sequester, debt limit, Cyrpus, Syria and other crises were headwinds that were supposed to kill stocks in 2013. They were excuses to sell stocks and to run for cover but, instead, we've witnessed a massive rally. Stocks have hit all-time highs. The bears that have been wrong every step of the way are wrong yet again.
Remember the Hindenburg Omen? It's amazing how something that has been wrong so many times continues to get press. We brought you the Heisenberg Indicator. It's never succumbed to the masses and continues to light the way for traders. Here is my take on those talking heads: https://www.optionmillionaires.com/stock-market-ready-crash/
If you follow this blog, participate in our chat room at optionmillionaires.com or watch our weekly videos, you know we've been calling for gains throughout these orchestrated sell offs. Every dip in stocks since the market lows of 2009 has resulted in massive profits for those buying that dip. The government shutdown in October?
As I stated at the time: https://www.optionmillionaires.com/add-government-shut-list-great-buy-dip-opportunities/ It's all yet another reason to buy stocks. The trend has been decidedly up, those fighting the trend have missed out on a rally that we likely won't see again for a very long time and have lost most, if not all, their capital by shorting this market.
Basically, this market has been gamed for gains. The writing was on the wall. Who else was calling for $SPY $180 in 2013? At the start of the year, Jimmybob was saying this market was going to see a parabolic rise in 2013. Up almost 30% on the year, best gains we've seen in a long time. Yeah, he pretty much nailed it.
My issue right at this moment is the decidedly bullish sentiment. What was lacking when we were sticking our heads out and calling for gains at the start of 2013 is now all over the place. The bulls are out in full force. The exuberance I see has me second-guessing my year-end outlook, essentially.
With the $SPY at $138 at the end of last year, I was expecting a move to $150-$160 and as we rose to $170, $180 became acceptable if only because no one believed it would happen. Now I see no one believing this market can fall. Traders are geared for more gains into the end of the year and into 2014. $190, $200 on the $SPY? For the bulls right now, it seems almost impossible for stocks to fall. Sentiment is in a euphoric range:
Great jobs numbers, stocks rally. Bad jobs numbers, the Fed just prints more money and stocks rally. We're in a no-lose market, and that scares me. I'm not going to be like every other "expert" out there and draw a green and red arrow on my chart. Seemingly every market pro out there has an "if-then" chart. If stocks rally then I will buy, but if stocks fall then I will sell. That principle is what you see with the few remaining bears in this marketplace, who have remained short the last 1,734 days yet miraculously survived this once-in-a-lifetime rally.
They are a farce. They've been short every day for 4-plus years but still tout their profitable outcomes. The one day when stocks finally do fall they will be jumping up and down telling you how right they were about this house of cards! The difference between them and optionmillionaires.com is that we know this market will collapse at some point, but we haven't put our capital at risk on the wrong side of the trade since the March 2009 lows. We've come to accept reality and have profited from it.
I think we've reached a tipping point. Everyone is expecting stocks to melt up into year's end. Everyone thinks we're heading higher. I don't doubt the Fed. I've been saying for years "don't fight QE" (quantitative easing) but at the same time, this market is nearing a level where I'd like to be thinking about moving to the other side. I'm not a perma-bear or a perma-bull, though; it's all about making money, and when I see everyone going long I want to be trading for a pullback.
I see a head-and-shoulders topping pattern which could imply a move to $SPY $175 in the short term.
The "V" bottoms I've called out since the "Abenomics" low in November 2012 looks to be coming to an end. The end of those bottoms is an issue for stocks in the short term. I see far too many bulls out there. The time when stocks are impervious to downside is the time when I want to explore trades on the other side of the spectrum. We are successful option traders by seeing what others cannot see. Me? I see a pullback coming.
One thought on “Are Markets Reaching A Tipping Point?”
Excellent read. Excellent thoughts. Is the Heisenberg Indicator in any way related to the bearish-ness of Tim Knight?