Auto Pilot | Seeking Alpha

We have been fairly verbose in our weekly ramblings, so we are going to try and be a bit extra succinct. We are firmly within the grip of a bear market. The large query is, how deep will this bear sink?

We noticed assist as being round 2300 on the S&P and we obtained assist at 2350. We count on that degree will now must be examined once more within the coming weeks to see if it holds. Our assist degree was 2550-2575 because the decrease finish of our latest vary. That is now resistance. The market shouldn’t be oversold anymore, so rating one for the bears, however the brand new 12 months will usher in new pension cash, and January has a robust historical past of features. Score one for the bulls. Institutional buyers are underexposed to the market now, and we may proceed to march increased, however the greater threat continues to be to the draw back. Traders and buyers could also be seeking to hire this rally to try to seize some features. We know we’re, having bit into this market under our 2425 goal. New cash may push market previous 2550, however most shall be seeking to promote the rip as a result of buyers are in a destructive mindset because of the latest selloff and can look to see if the 2350 low is to be examined once more. If it fails, we see 2100 as the following cease.

Bear market rallies are sharp and steep and die in gentle quantity. We had that in bunches on Wednesday as we rallied 1000 factors on the day – essentially the most ever. We search for sharp market rallies all through the length of this bear, and so long as QT stays, will probably be Sell The Rip (STR). Markets sometimes transfer decrease in three waves. We are within the midst of a bounce in wave #2 and see some alternatives.

We are protecting a detailed eye on the US greenback. If the greenback has peaked, that may very well be an indication that markets suppose we have now hit peak central financial institution strikes right here within the US. Powell and buddies could also be carried out mountain climbing rates of interest for a time. If that’s the case, then we are going to see a rotation into areas that profit from a falling US greenback. The downside for shares is the shrinking of the stability sheet continues to be on auto pilot. We imagine it’s the stability sheet that’s the US stock market’s downside. When the Fed pauses the drawdown of the stability sheet, markets will breathe a sigh of reduction.

“I’ve never made a buy at a low that I didn’t just feel terrible and scared to death making it.”

– Stanley Druckenmiller legendary investor

It’s okay to be scared. Even the very best buyers are. They simply management their feelings and reap the benefits of the state of affairs. Groceries are happening sale – make your record. There is extra to return in our quarterly letter. We made some purchases on Christmas Eve however are nonetheless underweight equities. Cash has been king in 2018.

Happy New Year, everybody! May 2019 deliver you’re keen on, luck and prosperity.

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