Here are the cons to shorting the stock market:
The Fed and the PPT have a printing press. They have access to unlimited amounts of money, and they are extremely motivated in keeping the stock market propped up.
Most of the world is experiencing negative interest rates. Money is flowing out of those bond markets and it has to land on something.
The combined contracts in the COT index funds are net positive 29 billion. The biggest, smartest, and best capitalized traders in the world are bullish, and not just mildly bullish, they are heavily bullish. What do they know that Joe Sixpack retail trader armed with his stockscharts subscription doesn’t?
The larger intermediate cycle is only 4 weeks old and barely half way through the first daily cycle. There is virtually no scenario where an intermediate cycle tops this early other than a potential financial earthquake in the immediate future and that clearly isn’t impending. As a matter of fact, the one sector that could have triggered a financial panic was energy but that has reversed aggressively over the past 4 weeks. So that bomb is being quickly defused.
Stocks tend to rally the strongest when the dollar is rising. The dollar is going to be due for an intermediate bottom next week followed by a multi-week rally.
We know that a 7 year cycle low is due, actually it’s overdue, and the rally out of the recent bottom has been one of the most powerful in terms of breadth in the last 60 years. That’s exactly what I would expect to see as the market comes out of a 7 YCL.
Sentiment isn’t even vaguely close to levels that would trigger an intermediate top, not even if this were a bear market rally.
The intermediate score is dead neutral. That’s not the level where we are likely to run out of buyers.
Source: Sentimentrader.com
The most clueless traders, dumb money retail, are still buying puts hand over fist. Until these emotional traders start buying lots of calls it’s unlikely that we are anywhere close to this intermediate cycle topping.
Source: Sentimentrader.com
The advance decline line is again making higher highs.
And finally the PPT has murdered what should have been a half cycle low, and in the process driven the S&P and Dow through resistance, and back above the 200 DMA.
So if you are trying to short this market, I have to ask: What the hell are you thinking? I’m about 85% convinced the 7 YCL is complete and we are at the very beginning of the bubble phase of this bull market. This isn’t the time to be shorting. This is time to get in early and ride that bubble phase to some really big gains over the next couple of years.
For 16 years the pattern hasn’t changed. The Fed prints too much money and keeps interest rates too low too long. It causes a bubble. The bubble pops. Markets crash. Then we start all over again.
The time to short will be after the next bubble forms. Be patient. Wait for stocks to go parabolic. Wait till you see the public piling into an asset class like they were in tech in 2000, and housing in 2007, and then short the market.
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‘What do they know that Joe Sixpack retail trader armed with his stockscharts subscription doesn’t?’
Hysterically phrased and relevant.
An interest rate hike next week will throw this theory out the window.
We shall see
Im thinking if Trump is close to being elected, the powers that be will dump the market and blame it on Trump and the people that are voting for him. We will see what happens this week with the Fed and Trumps Ohio/Florida elections. IMHO
What about if it crashed sometime in 2016. They can blame it on the current incumbent (like in 2008). Of course, that could put Trump in so maybe they might still juice the markets until after the election. Then they are stuck if the election goes Hillary’s way because she’s their chosen one and it will break on her watch.
Not really. Any interest rat ehike would be administered by drop serum; small and slow enough to not cause a “sustainable drop” in stocks.
Besides PPT is alive, well, kicking, and ready to jump in and Save the Day at a moment’s notice.
Interest rates are about as close to zero as they can get. I really doubt a 1/4 point hike is going to have any effect other than maybe a brief psychological one.
” As a matter of fact, the one sector that could have triggered a financial panic was energy ”
Or a banking crisis in Europe, which was made all more likely with the lowering of interest rates to -0.4%. European banks are in a bad way,(aka Deutsche…) I wouldn’t like to bet when the first one falls and the reaction of the markets. But sure if it doesn’t happen the markets will be great for the next few years. I agree shorting the market doesn’t seem the best choice with those cot figures.
The banks are done going down for now. It’s probably going to be another 2-3 years before the next one.
Gary, those figures are bullish indeed, but out of a myriad of data what makes the difference what you consider and what you skilfully or not decide to skip.
One could say that now you have a bullish bias and that you’ve chosen the bullish pebbles to put in your mozaic or another can say that I am choosing the bearish ones.
Regardless of that it is a fact: FED NEEDS SPACE TO RAISE RATES TO CLEANSE ITS IMAGE OF AN ALL-OUT MONEY PRINTER.
Thus, even if you are right and the market goes higher, then FED will use that “vital space” of optimism to keep on raising rates.
I cannot imagine how an optimism-driven rates-hike spree can bring in a sustained boom in stocks not to mention a ….bubble.
If you and others can it would be possible, go for it.
Historically the markets have gone up during the beginning of a rate hiking cycle. It’s not until they tighten too much that the markets tops.
It could be several years before rates reach a level that slow down the markets. They went from 1% to 5% before the housing bubble burst. I seriously doubt .5% is going to collapse the stock market.
All the foreign scared money is, and will be pouring into thesafe haven of last resort: US stocks, US real estate, US …anything.
The Russell & the mid caps are close to breaking the 7 YCL down trend line. If any of the major indexes break this the 7 YCL will be over.
Very viable points Gary…, going to look for first opportunity to get out of my SPX shorts on Monday…, already in loss…
What would cause you to announce an immediate course reversal ?
and what are the fund(s) you suggest investing in for the bubble phase of the stock mkt ?
thanks
The SPX would need to generate a failed daily cycle. We are a long way from that happening.
Biotech is where the innovation is. that’s where the bubble will focus most aggressively. So far it is acting perfectly. It’s starting slow so no one believes. That’s exactly what we want to see. Only smart money is entering and building strong hand positions. The longer the market balks the better. More traders to chase later.
Wait for Tepper to go on TV and say “you absolutely have to be in equities”, then gradually sell short into the blow-off rally that results. 🙂
There is a gap that would be closed at 2040ish for Spx in 5h chart. Up to close the gap on Monday then down we go, at least my EW count indicates a corrective phase.
Doubtful with the COT at plus 29 billion.
Your mentor has a totally different view on equities and gold.
http://www.howestreet.com/audio/Wood_Tim_2016_03_109.mp3
Who in the world is Tim Wood?
He’s one of the guys that Gary learned cycles from.
He’s a DOW theory expert … the problem with Tim is; he doesn’t account for the behavior of the PPT/ESF … Tim admits he’s purely a statistical guy … while Gary on the other hand incorporates PPT/ESF scenarios into his forecasts (which is something you have to do well in addition to TA/Cycles, or your gonna get fleeced).
Yes I know Tim thinks we are in store for an even worse bear market than 08 but I disagree. Tim hasn’t even realized yet that the 4 year cycle has evolved into a 7 year cycle because of ZIRP and global QE.
Gary you are right when you say “I doubt a .5% rate hike will collapse the stock market”. But I am of the opinion it will keep the market from going higher here in the short term. A lot of evidence out there (in addition to the bullish argument) that concludes we are going to head back down for awhile. Political uncertainty alone especially with escalating riots might even do the trick. What is interesting is how the metals might behave as a result of taking another leg down in the stock market.
I’ll ride till 2050 and I’m out….
LOL. Out literally? May you live tyo be 109.
Out for profit… I take nothing in life literally, life is to short.
At the very least I think we’ll test the all-time high. And at that point I’ll have my finger on the trigger.
Oh and Gary , I only trade with my retirement account otherwise I would subscribe. But I do have a precious metals fund that I have done very well with because of you thank you for your guidance… you absolutely called the ball!
Excellent, multi-faceted analysis of stoc market Gary.
You said in the end: “Wait till you see the public piling into an asset class like they were in tech in 2000, and housing in 2007, …”
Biotechs?
Yes indeed biotech. when the guy sitting at the table next to you at the restaurant is bragging about how much money he made on some penny stock biotech then you know it’s time to sell.
So Gary what would be your ultimate Biotech vehicle to ride for a couple of years into the blow off top phase and when would you start to take an initial position?
Thanks
XBI, IBB, BBH
Take your pick.
Thanks Gary!
Think LUBE has a better upside with its 3X shares.
What are your thoughts on leveraged ETFs like LABU or ERX?
Almost every stock market in the world has gone up substantially since the S&P bottomed on Feb 12. Even the Greek market is up 26% off it’s low. Do you think the FED and PPT hired extra staff to manage this huge task of pumping up so many markets simultaneously?
No, but certainly they coordinate with the other Central Banks.
_____
With global QE coming out our ears all foreign markets need is for the US market to go up and they will follow.
Sorry, I am not American and as such, do not suffer from the ‘Only America matters’ handicap.
Gary,
What do you make of the latest Gold COT?
The commercial short position has finally moved above 300,00 contracts. That is normally required before an intermediate cycle tops. Now we probably just need to see big money manufacture some kind of breakout so they can sell to retail money who buy these breakouts.
My best guess has been a marginal move above 1308 would be the top.
That being said we’ve made “enough” on this trade and I sold the last 25% position on Friday and will now wait until the next intermediate cycle low before reentering. I will not do anything stupid like sell short, or heaven forbid, buy DUST. Just because I think the top may be close I could be wrong and gold could make it to the 200 week moving average or even $1400 before topping. A position in DUST if something like that happens would destroy all the profits we made on the way up.
I’ll say it again, and I’ll keep saying it: Never, never, never short a baby bull. There are only two trades. You are either long, or you are on the sidelines. You are never short.
Gary
On the USD, the ICL bottom in the chart is at 94, thought we might be going lower than that even into high 80s, not so ?
No idea yet. We should make a lower low but we are in the timing band for the DCL and I have to think the FOMC decision is the likely trigger.
Hi does anyone know where you can find historical cot records? I would like to look at cot reports prior to the 2000 and 2008 crashes.
I have all the records back to pre 2000 available to subscribers.
I can tell you that on Oct. 16 2007 the NDX contract dropped to a Blees rating of 10. which pretty much marked the top of the bull market. It also dropped to 10 In July 2007 almost at the exact top before the summer swoon.
I just posted some Cot charts that go back to 2007 for some perspective.
http://www.silverdoctors.com/gold/gold-news/jim-willie-issues-weekend-alert-systemic-lehman-event-is-in-progress/#comment-185992
Using your logic with the COT, metals are set to plunge to new bear market lows then. Bubble phase delusions as usual.
Give it a bit longer past opex and Fed manipulation this week, 2nd quarter will be a disaster for the stock market.
The COT levels are not useful in determining how far a market will correct. They aren’t even useful for short term timing. The current total commercial short position is 313,000 contracts. As I kept saying all the way up when people continued to try to sell short too early that it almost always requires at least 300,000 contracts short before an intermediate cycle tops. These traders could have saved themselves losses if they had just been patient and waited for the COT to become bearish. But…
During cyclical bull markets (which I think we are now in) it can require as much as 350,000 contracts before an intermediate cycle tops. So it is still dangerous to short gold. The COT may not be bearish enough even yet for the top to form.
It’s going to boil down to whether the dollar continues down into a deeper DCL this week or whether it formed a DCL on the ECB meeting last week.
Swing high in oil while treasuries are in the timing band to have put their ICL.
Stocks to roll over in DC decline.
Still too early. First daily cycles are almost always right translated and they usually break the intermediate trend line before topping. I’m going to predict this rally will continue until the last week of March and then deliver a 5-7 day drop into a DCL.
Gary, monetary contraction by FED started 2 years and a quarter ago, not in DEC2015 with rate hikes.
A level of 0.5% now may be the equivalent of 5% during Greenspan’s last years with FED.
If you really believe the Fed is contracting the money suppoly I have some ocean front property to sell you here in Vegas.
They got a sharp warning in 2010 & 2011 as to what happens when they stop printing. They may have slowed and are only maintaining their balance sheet by purchasing expiring bonds but they are not contracting.
Although I am very bullish on stocks, I do think biotech needs to make a lower low. As it hasn’t come out of the gate as well as the other indexes in this rally means there is something wrong technically. I am not saying the other indices will correct to new lows… they probably won’t. But biotech will during the next correction phase. Then you buy IBB, etc. Not until then.
yes, Ted, biotechs are a laggard sector by far; they have no relative strength, there is no life in this sector as a whole.
Actually biotech isn’t lagging. It’s actually doubled the SPX. The S&P has rallied 11%. XBI has rallied 25%.
It’s just that bio fell much harder than the S&P. There were no interventions in the biotech sector to keep it propped up so it experienced the full effect of the 7 YCL. It will make up for lost time. Just be patient.
From it’s low of 44.16, to today’s price 51.60, XBI has rallied 16.4%, NOT 25% (still out performing the S&P over the past month but badly under performing YTD).
I was calculating from the recent low to the recent high.
I’m going to post an article tomorrow on short selling. It’s a fools errand for all but a very few.
That being said let me repeat that most intermediate tops in gold are constructed so that either gold or miners form some kind of breakout. That suckers in retail buyers and the smart money sells to them and the top forms.
So I’m going to take a guess and say there is one more surprise rally coming for gold and miners, maybe to 190 on the HUI, and that will be the top for this intermediate cycle.
That being said I may be wrong and there is absolutely no need to squeeze every last penny out of the rally. We’ve made “enough”on this trade. Time to wait patiently for the next ICL in May or June.
short selling is quite fine as long as one does it :
– either as long as he thinks the main trend is southwards, upward exhaustion has been reached and the short position is started with a small capital at risk and gradually grown
– or part of an effective intraday scalping strategy.
I’m not sure if we go to gold $1307 on this recent rise
If oil falls back to $30 and below, what effect will it have on the markets?
I think the 3 YCL is in for oil. I doubt we will see sub $30 oil for a very very long time.
Great time to post an article about the dangers in shorting, I just went short the commonwealth bank ASX , so far so good. Think the fed might raise again, and really hope your wrong about the bubble phase starting . The fuckers can’t keep it together a couple more years (surely)