THE EASY MONEY HAS BEEN MADE
On June 15th, I said the following: "Bottomline: Either way you look at it, your risk from these levels is extremely well defined. Barring a statistical “black swan” type of event, the odds of profit heavily favor buying into some long positions here. If you want to get fancy, you can wait for a break of the March lows, with the understanding that you may miss out if that scenario doesn’t come to pass."
Things have changed quite a bit over the past few weeks. While I was expecting the market to shoot up, I wasn't expecting a Nasdaq 100 to be nudging up against a new yearly high so soon. The risk/reward equation has shifted dramatically. The easy money has been made.
We are going to enter a period of volatility, shakes and nonsensical daily movements that add up to absolutely nothing when all is said and done. A company will report outstanding earnings and the markets will fall. A company will report terrible earnings, the market will rally. The remainder of July should be more confusing than fun or profitable.
Earnings should be good across the board along with guidance. The amazing rally of the past few weeks is telling us that this will be the case. There isn't much that can be reported, in terms of earnings, to make the market move up too much higher. Thus, the sideways chop I'm expecting over the next few weeks.
Just as certain groups of investors tell us when an important bottom is approaching. There are also groups of investors that can tell us when a short-term or even long-term top in the markets is approaching. What I have been seeing amongst short sellers last week, along with the action I have seen from momentum players chasing high volatility names is one more indication that the markets are going to be getting difficult over the near term. In other words, the easy money has been pulled off the table. What we see from here is a fight for every dollar that becomes available.
With that said, if you missed out on the point where the risk/reward equation most favored your play a few weeks back, now is not the time to be greedy, pushing the envelope further. Now is also not the time to be fearful that you are underexposed to equities and missing out on gains, while your competitors in the market have been reaping the benefits of substantial equity exposure. Taking profits and opportunistically searching for trades on the short side seem to be the play to make during this coming week.
I will be going over some charts to illustrate these points later today.
