Auto Pilot
Posted on Sunday, December 30th, 2018
We have been quite verbose in our weekly ramblings so we will attempt to be a bit more succinct. We are firmly in the grip of a bear market. The big question is how deep will this bear sink its claws in?
We saw support as being around 2300 on the S&P and we got support at 2350. We expect that level will now need to be tested again in the coming weeks to see if it holds. Our support level was 2550 -2575 as the lower end of our recent range. That is now resistance. Market is not oversold anymore so score one for the bears but the new year will bring in new pension money and January has a strong history of gains. Score one for the bulls. Institutional investors are underexposed to the market now and we could continue to march higher but the bigger risk is still to the downside. Traders and investors may be looking to rent this rally to try and capture some gains. We know we are having bit into this market below our 2425 target. New money could push market past 2550 but most will be looking to sell the rip because investors are in a negative mindset due to the recent selloff and will look to see if the 2350 low is to be tested again. If it fails, we see 2100 as the next stop.
Bear market rallies are sharp and steep and die in light volume. We had that in bunches on Wednesday as we rallied 1000 points on the day – the most ever. We look for sharp market rallies throughout the duration of this bear and as long as QT remains it will be Sell The Rip (STR).Markets typically move lower in three waves. We are in the midst of a bounce in wave #2 and see some opportunities.
We are keeping a close eye on the US Dollar. If the dollar has peaked that could be a sign that markets think we have hit peak central bank moves here in the US. Powell and friends may be done hiking interest rates for a time. If that is the case, then we will see a rotation into areas that benefit from a falling US Dollar. The problem for stocks is the shrinking of the balance sheet is still on auto pilot. We believe it is the balance sheet that is the US stock market’s problem. When the Fed pauses the drawdown of the balance sheet markets will breathe a sigh of relief.
“I’ve never made a buy at a low that I didn’t just feel terrible and scared to death making it,” Stanley Druckenmiller legendary investor
It’s okay to be scared. Even the best investors are. They just control their emotions and take advantage of the situation. Groceries are going on sale – make your list. There is more to come in our quarterly letter. We made some purchases on Christmas Eve but are still underweight equities. Cash has been king in 2018.
Happy New Year everyone! May 2019 bring you love, luck and prosperity.
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.