In early May, the monthly Jobs report came out strong. Paul Tudor Jones said you had all the data you wanted for fixed income to get killed. In other words, a strong jobs report means the economy is improving, thus higher rates down the road. Instead, the opposite happened! Bonds closed up that day and rates fell. Jones astonishingly said: How can anyone predict/think that bonds would close up that day??? PIMCO’s Tony Crescenzi was on CNBC last week and confirmed that being short bonds has been a “crowded trade” lately, which explains the recent rise in bonds and drop in rates.
The point of this story: What is obvious in the market is usually wrong. Jesse Livermore said “The stock market is never obvious. It is designed to fool most of the people most of the time.” William O’Neil says “The market moves to disappoint the masses.”
How this applies to our current stock market is that NO ONE is a raging bull. It seems like EVERYONE is cautious. Last week, David Tepper gave cautious comments at the SALT conference. Respected technician Ralph Acampora expects a 25% correction for small-cap, mid-cap and tech stocks. He went on to say “I have a sick feeling a 25% crash is ahead.” A trader friend of mine who has been a blind bull for 3 years recently called for a 10% correction. Another friend who manages $2 Billion and is a VERY sharp money manager says that small-caps “are about to get killed.” I can go on and on with about 10 more examples of people who basically state the same cautious comments. By the way, I am not making fun of these people because I’ve been saying the same thing. For a while now, I’ve said the summer will most likely be a waste of time and to save your money for the 4th Quarter.
For the record, I AM NOT telling people to get aggressively long this market right now. I don’t think we are out of the woods yet, and this market still has a lot to prove. I am simply making the point that this market is moving on psychology more than any other time I can remember in my 18 years of trading. Never in my career have I seen BOTH THE BULLS AND THE BEARS dying for this market to come down.
Will it come down this summer? It’s very possible. However, every time it looks like the market is about to fall apart, sentiment gets EXTREMELY negative, and then a magical bid appears to prop the markets higher. It’s been like this for the past 2 years, and as Marty Zweig says: “never fight the tape!” Either way, whatever happens this summer, I can confidently say that the market will continue to fool the majority. Good luck trading!
I can be reached at: jfahmy@zorcapital.com.
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