Very rarely do I take a
directional stand on the market. In
today’s environment it seems like yesterday’s profit turns into tomorrow’s loss
more often than not. Then there are days
like today that scream, “if you’re ever going to be a contrarian trader, now is
the time to do it.” Multiyear
highs! Gold! Hope for August jobs! Cue the financial media mania:
I love to tell a story when I
think about market direction; if the story makes sense, then my conviction in the
direction is strengthened. When there
are huge holes in the story, then my contrarian brain starts to scream “fade
Today, stocks ended at multi-year
highs. The S&P had its best day
since January 2008. So obviously the
DJIA made a new recovery high, leading commodities such as crude oil and copper
were up for the day, volume was strong as we broke to new recovery highs on
both QQQ and SPY, and bull market leaders such as AAPL (the fourth market)
ripped into all time high territory. Rock
and roll, buy the breakout, this is one hell of a strong story for S&P
1,500 as all the rocket boosters are in full effect for the continuation of the
Wait, hold on. So you’re telling me that the DJIA is still
below its May 1st high, crude and copper were down for the day,
volume on QQQ and SPY were right at their 50 day moving averages, and AAPL is
still sitting below its August 27th high? So my story for why this is a full fledged,
rip-your-face-off rally is blown to shreds?
Lastly, I’m not sure if you heard
or not yet, but the big theme of this year’s election is “are you better off
than four years ago?” Well, lets look at
what happened at this EXACT time in 2007 (yes, I know its five years ago). Look familiar? I bet the people who bought the new highs
October 7th, 2007 sure do. Volume
is lower on the right peak of each double top/“breakout,” the same headline
euphoria is back, and lastly the pattern looks identical.
Therefore, I call BS on the
action of September 6th. I
get that everyone was expecting a huge breakout from consolidation and that the
easy trade is to get long and stay strong.
Arrogance of the bulls has gone to the point that a bad jobs report is
bullish and a good jobs report is also bullish.
Usually when the stock market has no reason to go down is exactly when
it does. Add to that the severe lack of
confirming indicators and I think this was a massive bull trap. End of story.