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Why the Market today is Heavy

(2015-12-09 18:36:25) 下一個

I'm sending this out early since it was big rocky day and I have an idea what it means as we approach the first rate hike in a decade or so.

There wasn't much to say about Tuesday's session and that's why you didn't hear from me.

But today was another story. After opening a few points lower under 2060, the S&P staged a powerful one-hour rally up to 2080, taking out Tuesday's high. Bullish action, right?

And then it completely reversed and made new lows under 2040 in the middle of lunch!

Only the most-experienced and skilled day traders could navigate this whipsaw volatility.

The VIX went under 16 and then up to 20 in just 2 hours!

The S&P tried to close right between the converging tweezers of the 50 and 200-day moving averages.

But the late day bounce didn't have much gas and favored the bears, giving them a close under the 50-day (SPY closed right on its 50-day, so some bullish ideas would still find favor).

The Nasdaq 100 still held its bullish ground above NDX 4600 and QQQ $112.50.

But the Nas Comp is teetering, just like the S&P.

I hope you've been taking advantage of the big $6 to $8 trading swings in TQQQ between $116 and $124 while we hold a small long position here looking to add soon.

What Today's Action Means

The mood and price action this week tell me one thing for certain: many large players prefer to lighten exposure ahead of next week's FOMC quant-fest (remember, the quarterly shindigs are a full briefing with fresh economic projections, an updated "dot plot," and a presser from Chair Yellen).

Because even if market players can rest easy knowing that the Fed will go "low and slow" with rate hikes in 2016, they don't need to have a lot of risk on for the first one, especially with oil continuing its dive.

In short, the risk is skewed squarely to the downside in the next 2 weeks.

As S&P 2050 appears once again to be an equilibrium fulcrum for the bull-bear battle, now 2025 seems more likely than 2075 before the Fed, especially after today's big reversal and rejection of that upside level.

The Earnings Outlook Drives the Market

Just because the Fed is going to raise interest rates relatively soon (if not this month, then by March), doesn't mean the S&P needs to go a lot lower.

Given the earnings yield is still very attractive relative to Treasuries ($120/2050 = 5.85%), the forward P/E of nearly 17X makes the market "fairly" valued in an environment where recession expectations are once again subdued and equities are still the favored asset class for fresh institutional money.

So, just like David Kostin of Goldman Sachs has predicted correctly for a year, investor expectations should be somewhat subdued without more robust earnings growth. Earnings are just not a super-positive catalyst for S&P 2100 right now, like they should be to entice fund managers to be fully invested at a 17X forward multiple.

Thus, beyond the year-end scramble for exposure like we saw on Friday, there's little reason the S&P should rally back to 2100 with oil continuing its drop. That's why I have chosen to play more growth-oriented ideas in the Nasdaq and Russell.

But here's a smart bull who wants to explain how the S&P can still get to 2300 next year. Wharton's Jeremy Siegel and I both thought the S&P would see 2300 in 2015. We were both clearly fooled by the Energy and commodity meltdown, the yuan devaluation, and the spillover effects of these for the global economy, EM in particular.

Let's see what he has to say now in this fresh interview on ValueWalk...

Jeremy Siegel’s 2016 Forecast For Stocks

 

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gladys 回複 悄悄話 請每天多寫一些。我們很喜歡看呢。謝謝
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