All the major news outlets are finally admitting that stocks are probably rolling over. Duh. This last few months of rally had been thinning out more than Jason Statham’s hairline, which still did not stop impulsive traders or headline-chasing journalists from hyping up this recent advance, insisting that ‘times have changed’ and now old mules like IBM or Caterpillar (CAT) will drive a bull market in equities.
I know people who went long more than a third of their account balance as late as early December. I feel physical pain listening to someone telling me that.
There is a time to be flexible, there is a time where you need to be able to quickly pivot from ‘bearish’ to ‘bullish’ when new evidence comes to light. But this time is not now.
The recent few days of selloff did not come as a surprise to anyone that had been paying attention to the market’s inner workings, and I find it amusing how the market consistently woos ‘investors‘/speculators into participating every and any bear rally. Juicy carrots were dangled all across the board, but these carrots were long rotten.
Talking about expired food, I think it is time to reiterate that the the last bastion of the bulls will need to fall for excess positive sentiment to flush out. If the Apple stock (AAPL) and the volatility index (VIX) had a child, it would be called ‘Complacency’.
While Google (GOOGL), Amazon (AMZN), Microsoft (MSFT) or Tesla (TSLA) have declined 40%, 52%, 29% and 63%, respectively, AAPL still has only shaved off 25% from its Highest pricing and has not undercut its June Low.
Taking out the June Lows and declining 35-50% from the top will have a hefty impact on the popular indices that have AAPL as their largest weighting, but more so should do a good job of washing out die-hard believers. The latter are nowadays not only tech nerds anymore that camp in front of Apple stores, but also a whole army of portfolio managers that still consider AAPL a safe bet late in this bear.
A decline of at least 35-50% from the top should suffice … as long as money still sits comfortably in this blue-chip, people are not feeling the real pain yet that has afflicted the rest of the market.
Let’s see how the next few weeks unwind, I believe in January/February we’ll see the SP& 500 and NASDAQ in multi-year new Low ground. Call me cruel, but there is a certain beauty to that thought – at least from a long-term cleansing perspective.
