As BZB trader astutely pointed out in yesterday’s chat, there was no POMO today! And sure enough we got our 2 pt drop. Did you get that dip today? Pockets of strength appeared in the metals and energy, but the real pop today was in volatility. Not only is half the internet and media pumping banks, but there is plenty of chatter regarding cheap volatility. We are always on the lookout for that elusive 2-3% pullback, but strength often begets strength. Many have mentioned early January as a time for profit taking and many have mentioned hedging with cheap puts to take advantage of the low volatility. Could that cushion the drop?
The other concern is the extremely high sentiment reading. There are multiple instances where high sentiment readings are just the beginning of a new bull market. In 2003, Investor Intelligence percentage of bulls hit 60% and again in December 2004; the market had close to three more years of bull market. The bulls also hit 60% in December 2005 and the bull market lasted another 2-3/4 years. And the current run feels like the one we had in July 2009. We had our bumps along the way but a year later we are higher. In addition, we have accommodating monetary policy into the 2nd quarter and if the economy continues to show improvement, then look out bears.
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