Last week we called for new highs and we got them. Now we’re kind of sitting here thinking that is is looking a bit stretched and wondering if the market is not due a bit of a breather.
The market has become very strange indeed. The trend is so strong and there are so many dip buyers around that it seems the part will never stop. Although, whenever there are a few down days, the mood turns really dark and a semi-panic seems to take over. This is one more thing that worries us when thinking with the longer-term hat on. Why are traders to extremely negative when the market ticks down only a few percent? How much is the average trader geared and long the market? What happens when the market pulls back 10%? What happens when the Fed actually hikes interest rates? And what happens if the Fed hikes rates and starts tapering at the same time? These are some of the questions that we are pondering. But for now, the show goes on and the bulls keep dancing. Buckle up, because we’re headed for new highs.
Last week we pondered the idea of hedging longer-term portfolios for some downside protection. We also looked at a few instruments that could easily be added to your portfolio in order to provide that protection. This week we do not really have much to add, other than to reiterate the warning given last week. We think that it might get a little bumpy over the coming weeks. Thus we are happy to sit with some short protection and wait for better setups.
The last two weeks have been tough. In all honesty, the reason this blog post is only being posted now is because I found it difficult to not express an opinion on the current happenings in our country. It is deeply concerning. I must have written and rewritten this first paragraph at least ten times. It just feels disingenuous to write up a blog post that optimistically looks for opportunities, while our cities are burning. So with a heavy heart, I have to force myself to clear my mind of the anxiety and noise and focus on the charts.
We have to admit that today’s post was difficult to write. It is hard to focus on opportunities in the week ahead while our country appears to be… well, having a really rough time. We often say that we must filter out the noise and focus only on those things that can accurately analyse (aka. the chart), so that is exactly what we are going to do. Besides, the world’s financial markets are looking fairly good and we’ve positioned well for strength in the offshore portfolio’s. The only thing to do now really is to be patient and hold our positions.
We are all guilty of overcomplicating trading. Often we have to remind ourselves that most of the work is done by the market and that trend following is often the easiest way to interact with markets. This week we look at a few of the better trend following ideas we have for the week ahead.
It’s an age old saying in the market, and for good reason. The trend is your friend. Often we try to fight it and mostly, it wins the day. Markets are currently trending higher, and thus our plan is to find opportunities to get onboard with the trend and allow it to make the returns for us.
Well then, that’ll teach us to think that markets can actually come down from time time! Jokes aside, the bearish setups from last week have all be nullified and a fresh set of breakouts have taken place. Guess when it comes to equity market rallies, you really can’t stop a good thing. We’re not entirely convinced from a long-term perspective, but for the short-term traders… well, the job is to follow the market. So if you can’t stop a good thing, you might as well join in the fun.
Markets have been uneasy for a rather long time now. Well, uneasy is perhaps a mild way to put it. Markets have been uneasy for the last few months, maybe, but just over a year ago markets were in a full-blown panic. Thankfully those crazy times have passed. Over the last two weeks, we’ve even seen the VIX below 20, which is something that has not happened in a mighty long time. Lower volatility signals higher risk appetite and we think a VIX below 20 signals risk on in equity markets.
Markets bounced hard in the second half of last week. It’s almost hard to believe how fast things are changing in the current landscape. Although there are so very many reasons to be cautious, if not flat out bearish, the market is just pulling its ears back and making its way higher despite the conditions of the world around it. Thus, given the strong footing the market ended on last week, and of course the charts, we think that we’ll likely see new highs in the week ahead.