The S&P 500 was flirting with new record high levels this morning before giving up a little bit of ground, though there is still time before the close. The Russell 2000 is well into that record territory, now on an 11-day winning streak.
The run up from the election continues to be very impressive and a bit perplexing, especially given the prognosticating before the election about a Trump win and the acrimony since.
Volatility had been out of synch with the equity gains as it held some premium, especially on the longer end. But now the VIX is back down to 14, off more than 40 percent from two weeks ago. The VXST, the 9 day Volatility Index, is down… wait… all the way to 8.78, near the all-time record low. That is a 70 percent drop from the highs of the November 4. This extremely low reading will not last and suggest to me that everyone has unwound their hedges. It brings to mind Warren Buffett’s saying, “be fearful when others are greedy”. Now may be the time to be afraid…
Chris would agree with that sentiment, “I think the huge increase in bullish sentiment in the AAII poll means that every rally has to be sold”.
But many of our other traders are still bullish.
Carolyn is still looking up but wary of the bumps along the way. “In the bigger picture I still have higher targets in the SPX at the 2223 area......Within the bigger picture however there is room for corrective pullbacks in this process.”
Tucker thinks the SPX will continue to climb. “Yesterday it broke and closed above the Voodoo Tree Line of 2182. If it can now close above the recent highs back in August we should see the trend continue up.”
John isn’t fighting the trend either. “System activity has certainly favored the long side on the indices this week - and I see no reason for that to change in the near future.” He looks beyond the equity indexes though. “Grains however are mostly listless and sideways following the end of the growing season and in all probability, will drift sideways to lower for the next week. Seasonals are usually bullish into the end of the year following the Thanksgiving holiday. This should be the case this year reflecting strong export demand that continues to improve.”
David too isn’t fighting the tape. “Wave patterns have been telling us to expect this advance in the S&P 500 and now that it’s here, they also tell us that it’s likely not over. The overall message is to not fight the uptrend, but it is always safer to buy pullbacks whether they occur now or later.”
Next week will be a short one with likely lower volume. Ironically that can lead to lower, or much higher volatility. Given the analysis, I wouldn’t be surprised with the latter this time around.
Interesting links from the week:
Michael Lewis on the founders of behavioral psychology Kahneman and Tversky. (http://www.vanityfair.com/news/2016/11/decision-science-daniel-kahneman-amos-tversky)
Some popular leveraged Oil ETFs are getting delisted. (http://www.bloomberg.com/news/articles/2016-11-18/the-risky-oil-etf-that-millennials-loved-is-getting-delisted)
Volatility falls most ever. (with nice graph) http://www.bloomberg.com/news/articles/2016-11-18/market-calm-back-as-short-term-volatility-falls-most-ever-chart
Don’t be a pessimist – it’s bad for you heart http://www.nytimes.com/2016/11/16/well/mind/pessimism-may-be-bad-for-your-heart.html?_r=0