Optimism and the stock market
The worst word a bull wants to hear is optimism. Why? Because bull markets climb a wall of worry. We are fearless in the face of skyrocketing oil, a slowing economy, an asset bubble of massive proportions and a potential currency crisis with a deficit the defies the imagination. To top it off, the feds keep raising rates.
The VXN (NASDAQ volatility index) just reached an ALL TIME LOW today. What does that mean? It means there is virtually no risk premium in the pricing of options, a sign of tremendous optimism. Bearish advisors are back down to 20, levels that should post red flags everywhere, but no one cares or notices and the usual suspects, (you know them) just keep on telling you to buy. I say sell every rally and go to cash. COMP 2200 is a hundred points away, and that is the barrier of all barriers. It is the December 1998 high, an impenetrable level for years, because it occurred right before 1999, the greatest year of bloated excess the market has known in living memory. Hitting that level or anywhere close (I doubt we even get past 2150) with the macro circumstances listed above and historically high optimism is your clue to get out or go short. Start thinking this way. We could keep climbing, but keep enough cash around to buy the cheapest and best deal in town: puts. Right now, my best guess is DOW 10750, where we need to close a gap from March. I will keep you posted.
The VXN (NASDAQ volatility index) just reached an ALL TIME LOW today. What does that mean? It means there is virtually no risk premium in the pricing of options, a sign of tremendous optimism. Bearish advisors are back down to 20, levels that should post red flags everywhere, but no one cares or notices and the usual suspects, (you know them) just keep on telling you to buy. I say sell every rally and go to cash. COMP 2200 is a hundred points away, and that is the barrier of all barriers. It is the December 1998 high, an impenetrable level for years, because it occurred right before 1999, the greatest year of bloated excess the market has known in living memory. Hitting that level or anywhere close (I doubt we even get past 2150) with the macro circumstances listed above and historically high optimism is your clue to get out or go short. Start thinking this way. We could keep climbing, but keep enough cash around to buy the cheapest and best deal in town: puts. Right now, my best guess is DOW 10750, where we need to close a gap from March. I will keep you posted.
This entry was posted
on Tuesday, June 21, 2005 at 6:47 PM.
