Adapt or die

There has been a wall of email and blog comments and questions. It’s going to be a while to go through it. This might help….

I’m not selling my SPX short.  Not yet.  The SPX is wildly overbought on a short term basis and will pull back (look at RSI, MACD and ADX). Plus advisor sentiment is going to go berserk (bulls/bears at 4+) if the cash SPX closes this week anywhere near 2070 (where it is now).  When extremely high proportions of advisors agree on something, they’re going to be collectively wrong.

It may be a 1 week, 2 week or 3 week dip. The ECB’s December 4th meeting will play a leading role. The BEA GDP report and BLS employment reports will be secondary  (macroeconomic data is trumped by monetary policy actions).  Will Draghi deliver more monetary candy or merely continue threatening on December 4th?  If he does not deliver more candy soon, bond market vigilantes will force his hand (peripheral european sovereign bond interest rate spreads will begin blowing out over the Bund).

This dip will be nowhere near as large as it would have been without the recent actions by 3 major central banks. Absent them, the SPX would have dropped to the low 1700s in the next couple weeks (if not high 1600s), and there would have been an ongoing series of deeper dips for the next year.

But we have seen central banks intrude — and impact the Greedometers as they always have.  A 10th Greedometer sequence is all but a sure thing. I remain of the view that a 10th Greedometer sequence will not be stoppable — but that it will be slowable from new monetary candy from the ECB and PBoC.

I have some fairly tight ranges in mind in terms of selling the short and going long.

And how about that long bond?  I guess the Tbond investor is still sniffing something foul.