The market is in an unbelievable resilient status! I can only say I'm impressed extremely. Any weakness is facing eager buyers. Clearly there is no fear whatsoever as if the market will simply continue to go up. Scared for what? I know talking about caution in this kind of extreme bullish sentiment will only be laughed at. Fortunately I'm not writing this blog in order to please anyone and I can just post my honest view regarding what I'm seeing. And what I'm seeing is not pretty at all. Let's look at the following chart first.
Can you tell me what you can see from it? Well, you don't need to be a PhD to tell the similarities between the current market vs Jan 2018, right, especially with my highlights? It is eerily similar or may be even called virtually identical in terms of timing, the distance from its 50 DMA, the overbought status as reflected in RSI, and another important indicator that is not shown on the chart: the Call/Put ratio. As you can guess, when the market is super bullish with euphoria widespread, people love to buy calls much more than puts. So the C/P ratio tends to decline and now it is less than 0.7. C/P is a good reliable short term contrary indicator. When it drops below 0.8, it is extremely overbought and tends to snap back, which means a decline of the overall market. So what was the C/P ratio back in Jan 2018? Also around this level!! As Mark Twain has said, "History doesn't repeat itself, but it does rhyme." Can the Jan 2018 sharp correction repeat itself this time? I don't know for sure but I bet it will at least in some format!! Of course, by no means I'm telling you when this will happen as no one can know for sure the exact timing. What I'm trying to voice here is that this is a very risky time period and you better fasten your seat belt and be prepared for a bumpy road ahead.
By the way, while I'm constantly put out my cautious view out there, it dose not mean I'm only bearish on anything. Not at all! Actually I shared with my Family today to close a put selling position for CASY to take a 45% profit within 7 weeks (or annualized 330%). A month ago I noticed CASY was sold off hard but it is a good company with solid fundamentals and should be due for a rebound. So we sold its $155 puts then to bet it would go up in the next few weeks. Fortunately it did and today, it is trading at $168. In my mind, this is a much better and low risk way to trade in an euphoric market instead of chasing with FOMO. We have a lot more such kind of income trades waiting for harvesting in due time.
Quote for day:
"Investors should purchase stock like they purchase groceries - not like they purchase perfume." - Benjamin Graham
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