SPX @ 1666, "Long time no update" and "From the devil to the Bernank"
1000 points. Pretty amazing! Obviously the strategy outlined in the last post was for a top to be created around 1580-1600. Sentiment and other technicals suggested in the beginning of May as we rose above previous highs and still bears stayed committed to their negative positioning that we would continue to pain trade upwards. I have stayed mostly short commodities and long equities, trying not to get net short. Obviously my calls on gold and silver have paid off well.
Same indicators suggest still that the pain trade is upwards even if some of that "bearish upward pressure" has been alleviated during the last week of opex squeeze. Friday afternoon it was especially visibile when DAX all of a sudden jumped 50 points, obviously a short squeeze. Looking at more extreme assets like Greek equities shows a parabolic development indicating extensive short covering. This suggests bears are beginning to capitulate. I am not suggesting there are even that many bears but on the margin given these central bank injections, it does not take a lot of bearish hedging to give the market this kind of bernanke put that just gives it this continous upward drift.
Now, we are at a point where technicals in terms of mean reversion potential etc is extreme out of a historical perspective. If we can only get some bear capitulation, we can begin a consolidation and downward drift period.
I would decrease position size and look at this from a longer than usual perspective, say a couple of months instead of couple of weeks, and for that period I see a high conviction of lower prices.
One simple and really disturbing fact of the markets is that they are 90% politically and central bank driven. Naturally that news flow decreases during the summer when they go on vacation. It is also the time when people in the northern hemisphere tend to group and protest against the measures that the same ruling guys/troika imposes on them. So that simple fact could actually contribute to a very real new normal seasonal effect (New Normal.X11?) where markets correct during the summer (on central planners vacation) and rise during the rest of the year.
Begin with long/short on strong vs weak markets (weak markets that have squeezed lately) Increase bearish positioning during the next 4 week period if subscribing to this game plan, but with a smaller than usual size.
