Back in April, we commiserated with BBG ex-trader and commentator, Richard Breslow, who when looking at the ongoing events in markets, had a near nervous breakdown. For those who missed it, here are the key excerpts:
Trading is a hard business. The world is becoming a more complicated place: a number out of China may do more to the price of your U.S. shares in a retailer than, well, U.S. retail sales. Yet creeping, dangerously, into the investment advice dialog is the argument that buying and holding no matter what the event is the winning strategy. If you ever needed a “past results don’t guarantee…” disclaimer it’s especially true now.
It’s not surprising that such shallow reasoning is becoming commonplace. Sure beats staying late at the office doing cash-flow analysis. Bad things happen and the Fed will cut rates. Worked time and again. Presto chango, that financial crisis was a buying event, stupid. It’s gotten much worse post the latest financial crisis, as it’s assumed asset prices are the main (sole) focus of the all powerful central banks. Equally scary, academics as well as analysts have taken to arguing that investors are overestimating the probability of crisis events. You don’t need to be a Taleb or Mandelbrot to calculate that we have been having once in a hundred year events on a regular basis for the last thirty years. Did a crisis happen, if you made money?
This flawed logic argues not only buy every dip, but why waste money on hedges? It assumes unlimited deep pockets and the nerve of a non-sentient computer. Just go “all in.” Looking more like today’s world all the time. Portfolio theory thrown right out the window. Perhaps Harry Markowitz will have his Nobel revoked. A portfolio built to only withstand stress thanks to central bank intervention is one destined to blow-up spectacularly.
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Eight months later, with the market again at all time highs, it is Wall Street analysts who are on the verge of losing it as they have no choice but to “analyze” a market which – no matter what – keeps grinding, or in some cases surging, higher. One such example comes from Rhino Trading’s Michael Block who offers the following perspecitve on why European stocks spiked the most since the Trump victory last month (largley a black swan event), courtesy of Barron‘s:
…[Apparently] the pattern of fading a potential crisis and then scrambling to cover and get long when everyone takes a breath and realizes that this time is not the apocalypse either still holds more than ever. I can’t justify any of this. The lesson investors and traders are getting is that everything is a buying opportunity and you need to not miss the boat. Brexit? Bullish. Trump winning the election? Bullish. Italy saying no to the referendum and the Prime Minister handing in his resignation? Bullish. Heck, all we need is a coup d’etat in India and the entire Belgian banking system to go kablooey and the S&P 500 will be at 3,000 by Christmas Eve.
Others, like Oppenheimer’s Ari Wald, have decided to forget all about caution and just jump in with both feet:
As our tactical indicators reset from overbought, we recommend using weakness over the coming weeks to add to positions based on our view that the bull market is intact and likely to continue over the coming months. It’s unlikely the ascension of the advance will be as steep as it was in 2013, but we expect a moderately-paced rise, like 2004 to 2006; this outlook is consistent with the start of a Fed tightening cycle when the bull market typically transitions into an earnings-driven advance from a liquidity-driven one. From a trading basis, seasonal weakness in the first half of December is usually met with buying demand ahead of a year-end rally.
Why is he so bullish? Simple: the Christmas Rally.
Since 1985, average S&P 500 performance has declined between Dec. 6th and Dec. 15th before reversing higher and reaching new highs into year-end. In addition, it’s important to highlight the differences in our indicators between now vs. one-year ago ahead of the Q1’16 correction: 1) internal breadth is broader now; 2) leadership is cyclical now; 3) credit spreads are narrowing now; 4) commodity prices have stabilized now; 5) interest rates are moving in the right direction now; and 6) the overall trend is stronger now too. In accordance with the typical seasonal trajectory, we therefore recommend buying early-December weakness rather than selling late-December strength.
And then there are those who try to make some sense of both extremes, like Raymond James’ Jeff Saut, who looks at the market, and according to BI, says “the S&P last week experienced one of the classic indicators that the top is in. But it’s bullish, for now.”
Read that last sentence again: “the top is in but it’s bullish, for now.” Here is the argument.
“The pause has permitted the stock market’s internal energy to rebuild, suggesting the S&P 500 (SPX/2191.95) is getting close to grinding higher into our envisioned February short-term timing point.”
So either the market is going up, or it isn’t, in which case it is merely preparing for the next phase higher, which means forget BTFD – it’s now ancient history. Just keep BTFATH TM, and buy even more if for some reason, a new All time high is not hit on any one given day.
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