In my opinion, folks gobbling up equities at current prices can be described with two words: (a) In; and (b) Sane. It's as if all the reasons that equities were plunging lately suddenly were erased from the whiteboard.
Now, I do have some sense as to how things can get temporarily oversold, which is precisely why, mid-Tuesday, I covered the vast majority of my positions. The idea to short bonds has been working out nicely, and as I've said repeatedly, the preponderence of short candidates I follow are far, far too away from their stop-loss levels to make them interesting to me.
But the market, to my eyes, doesn't have a sustainable base. Looking at the S&P 500 index below, it bounced nicely off the Fibonacci fan lines, but I think it's going to have a hard time getting passed about 1205 or so.
As I mentioned, my bond short idea turned out to be pretty good. This market has had an almost perfect negative correlation to equities, so its weakness lately has egged on equity bulls, perhaps rightly so. A lot of fog will clear once the jobs report comes out Friday morning.
I brushed off my "2008 compared to 2011" analog for the GDX, and I still find it pretty interesting. Here is the GDX in 2008. You can see an intermediate top, circled in blue, and then a topping pattern, banging along support at each of those red circles. When it finally broke, it signaled a break in the entire equity market, and all hell broke lose.
The current GDX isn't exactly the same, but by God, it's close enough to be intriguing.
Here's a bit of a different angle on the equity markets by way of the ES e-mini. The broke trendline, shown in red, has been rapidly recaptured by the past two and a half days of bullish action. I say again, this isn't exactly the kind of massive base upon which bull markets are built. People have way too much August 2010 on the brain right now (e.g. "The selling is over, and now we can climb for nine months thanks to whatever Bernanke is going to do.")
And, not to beat a dead horse, but here's the NASDAQ composite, showing a series of lower highs and lower lows – – the very definition of a down-trending market. Don't drop dead of shock if the weakness that seemed so familiar up until mid-Tuesday makes a return appearance.
Lastly, below is the front month for crude oil, which is important to watch (although, since just about all assets except for precious metals seemed to have reached a perfect correlation anyway, perhaps it doesn't matter what you're looking at, up to and including the spot market on kitty litter).
I can't say what kind of jobs report would make the market go up or down. You could cite almost any figure (down 100,000; unchanged, up 100,000, up 500,000) and come up with a compelling reason why the market would rally or sell off based on that news. So – we simply have to wait. To my way of thinking, if equities do continue to rally, I'm more comfortable being short bonds than long equities.
That's it for me today. I'll see you Friday morning, after the jobs report is history.