Top Line: The stock market continues to try to hold up with ever diminishing power. Tonight's futures and the Asian markets are down with the possibility that a down start to Monday may occur.
The main idea tonight is that the market is ready to take a breather. We have been waiting for that since, well, a long time. Our portfolio has gradually moved from extremely long to its current nearly completely short position.
With the volatility indexes barely breaking below their earlier lows, the market is set up for a good drop. When the volatility indexes are low that indicates some investor complacency, in other words, No fear. With prices drifting higher and volatility slightly lower, we expect a reversal in both of these directions.
Stocks, in terms of the SP500, should drop back down about 10% or down to about 900. If a selloff does occur, we sort of expect a sharp decline but we will be watching closely for a tradable bottom.
We still think the public is not sure about the market and a selloff would scare them off even more. What this tells us is that the market is not at its top but we can not be sure. With the market, you need to be careful about making predictions about what happens after the current move...but we seem to be disregarding that recommendation.
We think the public will find some optimism later in the year as prices take out the current highs and move a bit higher, yes, to SP500 1234 level. When this occurs, we will be watching to see if the public truly is buying heavily. If so, we will have more confidence that a high is at hand.
Right now, there is some exaggerated insider selling and the market feels overbought so we remain heavily short getting ready for a sizable pullback.