I Was Certainly Wrong
No doubt, the viciousness of this (bear market) rally has caught me by surprise. I’m not going to sugarcoat or make excuses - I was wrong!
Upward momentum is so strong, the current “Tulipmania” delusion of the investors of the world - not just in the US, but in China (which is clearly a propaganda-fueled fairytale), the wealth effect here, and the jobs situation, has created the backdrop to ignore valuations (and, worst-still, the state of real valuations), inflation, rapidly rising rates, and a geopolitical landscape which has no good ending (and contrary to the notion that a ceasefire in Ukraine will cause a market melt-up, I would expect it to do precisely the opposite. After all, the low tick in the indexes this year occurred on the at the open after the invasion began) can be in store.
Even the collapse in quality spreads has me very, very surprised. HOWEVER, the volume pattern (and volume - emotion in the marketplace), since last Thursday’s low volume, has provided a “sell tomorrow on any strength” signal every day since, including today.
At the risk of sounding like a broken clock, if not short, it’s time to get short. This is a sharp rally in a bear market.
The market, internally, topped out months ago. Valuations aside, loking at just market breadth, the advance/decline line topped out November 8 (for NYSE, using Nasdaq for such numbers is very misleading and would appear we are in a permanent bear market if we used NASDAQ breadth here):
Cumulative advance-decline volume peaked out June 11 of last year:
My proprietary “Drop Terminus” signal, which I would expect to indicate the end of a drop of any magnitude > 10%, never gave a signal. This has a pretty respectable history:
Lastly, oneof my favorite indicators is the number of shares outstanding in the SVXY ETF. Historically, when markets have sold off hard, the number of shares of this ETF has shot upwards. Currently, here is how it stands:
Late tonight, Proshares will update this data for any changes wrought by today’s activity (volume was so light today that I doubt there will be any chances). For the time being, however, this is shaping up indicating a big market drop on our doorstep.'
Given volumes of the past 4 days, despite being embarrassingly wrong for the past week, the data indicates short is still the correct position here, that this is merely a violent bear market rally in stocks and credit spreads.