Risk is very high

Happy New Year friends!
The last week of last year was extremely light in trading and not much moves involved. So I took the chance to relax with my family by doing some home improvement work that I can manage. Quite a fun time indeed! Now we are entering into the new year and obviously the most demanding question for traders is where the market will go in the near term. I of course don't know for sure but I do have a strong opinion. So here is my first prediction in the new year for 2017:


I bet January will be a terrible month for stocks in general. I think the risk is very high!!


Why am I so bearish? Two major concerns I'm seeing:

• I was wrong by expecting that the last week or so in 2016 for the stock market would be bullish and up. Traditionally this is a very well established seasonal bullish week positive for stocks. But not this time. This to me is a warning signal from the market. The Trump rally in the past 2- months has gone a bit too far too fast! The euphoric sentiment has been too strong to last any longer. I think the market wants to rest at least for the short term. The correction may start very soon in Jan, if not yet started.
• The seasonality also does not bode well with stocks. Based on historical data, Jan and Sep are the two worst months for stocks in general. Given the extremely hyped  sentiment with fast elevated stock prices, I think this Jan may be a pretty bad month, worse than usual probably. A 5% correction is not unthinkable to expect.

If this indeed happens, VIX (e.g. VXX) will shoot up quickly as it has been depressed so much to the historical low level. That's why I'm betting on VIX now that it will go up fast in the next few weeks. I'm also sticking to my expectation that Treasury (e.g. TLT) will go up soon. Of course, both are short term trades only.


Wishing everyone a very prosperous 2017!!