Market Analysis

Risk Free!

riskfreeIt’s just so cool. One never needs to worry about anything. Ever since QE infinity was introduced markets have played the same pattern over and over again. 10 times to be precise with only 3 times so far in 2014. These dips are becoming rarer and rarer and once they occur buyers trample all over themselves to rush in with 0 volume.

Funny how this works, but so it has and so it does:

SPX auto pilot

The main oddity of it all is that it the most recent V shaped bounce has not occurred through trading but almost exclusively through gaps and/or short bursts of sudden buying. The $NQ futures have just rallied 200 points in less than 8 days, but the $SPY chart shows how these gains were achieved:

SPY gaps

In short: The fewest people are driving price for everybody with the least amount of volume. Cute.

While buying the dip has worked for years now it does come at a consequence and that is a market that is insanely stretched on a long term basis. Below is the monthly chart of the $NDX.

I ask:

If you’re playing long is your risk/reward profile now solely based on the premise of a 2000 melt-up repeat?


With a monthly RSI at over 80 I can only point to a couple occasions during the largest tech bubble in history where this happened before and temporarily yielded higher prices. So being long here implies relying on a repeat. Full stop. Any other market history says buyers will get hurt. A lot. But they keep buying here after the $NDX has quadrupled in price since 2009 without a serious correction in years.

Per my weekend chart we now gapped right above the trend line into key territory. Looks like the market will have to make a decision soon. Whether it happens during trading hours is left to be seen. Apparently everything is decided for the market in after hours, at night:


Good luck trading!

Categories: Market Analysis

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