Gone are the days of old, those mornings of weakness that would bring out the Pavlovs dog in market participants. The morning dip the would inevitably get bought, usually after the first hour of trade.
Say goodbye to those headline driven declines that swiftly morphed into incredible buy the dip opportunities, leaving baffled Twitter bears wondering what the hell just happened..... how could the market rally in the face of such negative headlines!! Those were the days. The market looked many times, on the verge of complete collapse... and then prices would reverse, much to the chagrin of those uber bears. Yes those same bears who are pounding their chests today, are the same ones who called the end of this bull market each time prices dipped and every year and month since March 2009
And clearly now.... prices have dipped. And those uber bears are feeling about as confident as they've ever felt the last 10 years.
Welcome to a new market. One where we see morning rips not morning dips. Strong early upside action transforms into heavy selling. We have seen massive 1%+ gains for the market vanish by the early afternoon. Those morning buyers that used to appear an hour into the session are no where to be found.
Morning weakness was a theme we saw quite frequently from the lows in March 2009 until recent record highs in late September. The BTD ( buy the dip) mentality of the market was built on that Pavlovian response to morning weakness. I covered it many many years ago. I also think Rope a Dope is an apt term for the market action we've seen over the years.
Which is why I've called the most recent market action, since the highs earlier this past fall, Dope a Rope.
It's been sell the rip. Look no further than the last 4 trading sessions.
Will this mornings 1% rip get sold?
What do I think? Back when the market corrected at the end of 2015 and the first two months of 2016, we heard the same talk we do today, namely that we are close to a recession. Price action felt a lot like it does today. The rips where getting sold back then too.
Sentiment at stocktwits.com for the $SPY was 24% BULL 76% BEAR. A stunning amount of negativity for the market. And yet from that negativity emerged a massive 2 year rally for the market. With the $SPY posting gains in almost every month for 24 months straight.
There were plenty of excuses to sell back then, just as there are now. The irony is that the excuses to buy emerged after the rally was underway, not at the lows.
Perhaps the top is finally in for the market. It's been quite a move from the lows after the financial crisis.
Do I think the top is in? No. But I have an open mind. I love a good bear market just as much as those uber bears. But I realized, a good year into this move to record highs, at the end of 2009, that the Central Banks were going to do everything in their power to re-inflate asset prices.
My thinking is that the Pandoras box has already been opened. The next recession will be met with massive liquidity and possibly negative interest rates. And who knows, when the next recession comes the FED may even start buying equities much like the Swiss and Japanese banks have been doing. Why not?
In a world where failure in not an option, give all the market participants first place trophy's.
Which is why i think just like it did in 2016, buy the dip will return. And so will a move to new record highs. It's just a matter of when. Clearly the short term action remains choppy. The sell the rip mentality tells us the remain wary, and that downside risks remain. But string together a few mornings of selling, where the market looks like its up on the ropes... and then suddenly surges back.... we'll know the rally is upon us.
and one last thing... the line in the sand - rests at $280 and $260 for bull and bear alike
Have wonderful day!