The question that needs to be asked about this current
market is simply, "is this 1995 all over again or will some sort of
reality take hold?" The answer to
that question will predict how this market behaves for the next several
years. While I fully understand why the
market feels like it will not ever go down again in all of human
history (The January Effect), this rally is now pushing the borders of
absolutely absurd. So I fired up the charts
and took a look under the hood of this current bout of insanity.
Current Reality
I feel the best way to look at "current reality"
is through the distance from the 200 Day Moving Average on the
S&P weekly chart. The size of the weekly
chart gives great historical perspective.
Simply, the mania of the 1990's ended in March of 2000, and since then, the market has had a totally different feel.
200 Day Moving Average
Obviously, post dot.com crash, the market spent a
significant amount of time under its 200MA, however I want to focus on extreme
points above the "all is sunny skies and unicorns ahead" line. Simply, in the last decade, the market can't
get more than 20% away from the 200MA.
Period.
1995
Welcome to the land
of the first Toy Story movie, Michael Jordan's return to basketball, and listening to Ace of Base. 1995 marked the
beginning of an absolutely insane three year run in the market. Corrections were actually sideways action and
parabolic moves up were just another typical up day.
200 Day Moving Average
The S&P routinely spent time at minimum 20% higher than
the 200MA and often maxed out with readings above 35%. No other commentary other than
"wow."
So simply, the question remains, "does this market have
one last dose of reality left in it?"
Otherwise,people will be popping champagne in a few years when the
S&P hits 4,000. Personally, I'm
inclined to believe that there is a drop coming and soon. I purchased SPY 156 puts expiring in May
today. VIX in the 11's, 20% away from
the 200MA, and a 70+ RSI simply means I had to.
If I'm wrong, it looks like I'll be partying like I'm 11 years old
again; welcome back to 1995.
