Today's entry will be relatively short.
Although you may not believe this, I saw today coming. Sort of. For those who might hurl claims of permabear, let me cite my recent quotes over the past few days...
From my March 14th posting:
I think it's time to back off for a while...That isn't to say that the drop from 12,700 to 12,000 consitutes the Giant Bear Market I've been talking about. Not at all. I'm just saying that, barring an important new catalyst, I can see the bulls taking the reigns again for a bit.
From March 19th....
The principle risk the bears are facing right now is if the markets show much more strength, they are going to push into a relatively "all clear" zone where the bulls and frolic for a few weeks. I've tinted this in green. The NASDAQ is even a prettier picture for the bulls, since it seems a short term double bottom may have been hammered out, and there's plenty of open sky above current levels.
And from yesterday, March 20th...
Index after index shows the same thing - - that we are at the upper levels of the trading range established after the 2/27 break. As I said yesterday, if we push above this trading range, the bulls are going to feel rightfully emboldened. If we don't see weakness tomorrow, it's going to only amplify the discouragement, disappointment, and frustration of the bears who had thought their fortunes had finally turned with the recent market break.
What surprised me was the speed that the market has retraced virtually its entire drop from February 27th. You can see how quick the effect of the Fed's statement was today:
You would have though the Fed statement read, in its entirely, "The U.S. Government hereby guarantees a positive month-after-month return on U.S. equities in perpetuity." Instead, here it is:
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
Recent indicators have been mixed and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters.
Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.
In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.
Surprising that the above statement generated so much excitement. But here's where Tim the bear comes out: I was gobbling up puts left and right at the peak of the market today, because I feel 2/27 was the tip-off to a new kind of market, and everything we've seen since then has just been a retracement which will be obliterated in short order.
Just look at the $VIX. Every morsel of volatility from 2/27 forward has been destroyed. We're back to "the before time."
The key for the Dow 30 is the trendline I've drawn. I've circled the key break date.
The Russell 2000, being particularly strong of late, is just about to kiss the underbelly of its broken trendline. This, to me, is the ideal time to buy puts (or otherwise short the market). Because for all those that missed 2/27, here is your second chance.
Same story with the S&P 500.
I find the $XMI graph intriguing, although shorting this index isn't as easy. The full-blown bear play would be to short it here and watch it smash that horizontal line (which represented the former bullish break-out).
Don't get me wrong - - today sucked for the bears. But, as my earlier postings suggested, we had to suffer through this retracement. You can see from the comments section of yesterday's post how re-invigorated the bulls are now. Memories are very short, my friends!