Greg,
Sorry I didn't get around to answering your question earlier. I just saw that you posted others' responses, and I wanted to log in with mine before I looked at theirs.
My position hasn't really changed substantially. I view the Fed move as something that was bound to happen, and now the easing bias is largely priced in. It took the market by surprise, and we know how the market hates surprises---but loves nice surprises, as we see every earnings season.
I think it may take a couple of bellwethers warning, but eventually the market will take a different view of the Fed's actions: the Fed is confirming---with hard data---the fears that have been driving the market down lately. But now, the fears are being confirmed. That will dawn on the market I think when some big warnings come out. In other words, the Fed has verified what had been a more vague uneasiness.
My economic outlook going forward has not changed: we seem determined to go into global recession. A short-term last hurrah looks likely here now, however. I would anticipate the COMPX rising to around 3000, perhaps a bit higher, and this countertrend rally could last a couple of months if the FOMC aggressively eases some more. But eventually, it will fall apart, as the market realizes the FOMC can only forestall, not prevent.
Here's some numbers from the sentiment front, which I believe to be key to pivot points: the QQQ put/call now sits at 0.36, just a hair above the 52-week low point of 0.35 set just yesterday. The QQQ put/call has steadily declined now for over 10 months, since the March Meltdown in the Naz. This level of investor optimism in the Naz 100 is hardly warranted by either fundamental or technical factors, and flies in the face of reality. The more extreme this gets, the greater the probability that the market will reverse to the downside, just as stocks do not stay at either extreme overbought or extreme oversold levels indefinitely, but tend to oscillate, as does the underlying stock price.
That said, it should be noted that the QQQ put/call oscillates to much greater extremes than the CBOE Equity put call, and so this reading, though low, might not be considered truly extreme just yet by QQQ standards.
One other point: Wednesday a large put order crossed the tape at the Feb 52 strike, consisting of 9,000 contracts controlling 900,000 shares. This compares with 532 contracts open previously at this strike. My take is that this big block will provide support for QQQ at this point. The Max Pain points for January and February are 61 and 58 respectively.
Another factor is that the average allocation recommendation of Wall Street analysts has continued to rise relentlessly, and is now near a 3 year high (stocks, 67%; cash 9%; bonds 24%). This also I view as a stronger and stronger contrarian indicator.
Also, the Consensus Bullish sentiment guage of futures traders has reached a low point of 21% bullish on stocks. Only two other times has this figure been less than 22% for two consecutive readings: once in September 1998, and the second in May 2000. In both instances, a short term bottom was then found very soon, and a 1-3 month rally begun. This indicator I view as fairly reliable for short term moves (of the order of less than 3 months). So I view this indicator as an earlier indicator than the others, but all seem consistent.
JMVHO, as always..........
Terry |
