My actively updated as I trade spreadsheet is here: TRADING SPREADSHEET LINK

Saturday, March 9, 2013

SPY Study

Since the 2008-2009 market crash, we have experienced a bull run that has lasted 4 glorious years. I enjoyed most of the ride up - with exception of the summers of 2010, 11 and 12. This is NOT to say I have been 100% bullish and have made money hand over fist during this epic run. 2008-2009 were awesome years for me, 2010 was very good, 2011 was decent, 2012 was sub par. My rationale in 2008/2009 was to go with the flow, and I was lightly invested, but of those investments, they were 100% short.  In 2009 I started 'carpet bombing' the market, buying several small positions to the long side. Distressed banks, transports, miners, etc etc. I remember buying so much DRYS, it was stupidly my largest holding at one point. It paid off, but that was highly unintelligent. In 2010 it was still fairly obvious to me to not fight the FED and to go with the flow, my bias was still largely long. My bullish feeling dwindled a bit in 2011, and a bit more in 2012. This year, I have turned slightly bearish on the market - and there are a number of reasons for that:

1. 4 years of a bull run, aided by the FED or not, is toward the longer side of a market rally.
2. This late 2012/early 2013 run has felt very euphoric - take a look at names like MTG, PRIM, UNXL, PAMT, PENX, GTN... and the list goes on and on. Huge buying, some of these small cap names are up 50-500%! These are small/mid cap stocks, not penny names.
3. More and more media outlets are bullish, giving outlandish projections of SPX 2000, or DOW 20,000. Remember what happened to AAPL when analysts released their infamous $1000 price targets?
4. More and more 'common buyers' of stock are talking about the market, at least to me.
5. Several indices are close, or above all time highs.
6. VIX is at or near the lows of 2006/2007 - roughly speaking.

With everyone bullish, the bull run extended, fear completely gone, etc etc, I am getting more and more nervous - and excited.

Another reason is the chart below:

We have had 4 or 5 major 'runs' within this giant bull move.

LEG ONE: SPY 66.75 to 121.48 (!), an unbelievable 81% increase, or 54.73 point jump, lasting about 13-14 months.

LEG TWO: 100.60 to 137.18, a 36% increase, or 36.56 point run, spanning roughly 10 months.

LEG THREE: 107.43 to 142.21, a 32% increase, or 34.78 point advance, this time lasting about 6 months.

LEG FOUR: 127.14 to 148.11, a 16.5% increase, or a 20.97 point gain, enduring 3 months.

LEG FIVE: 134.70 to 155.65, 15.5% gain, or a 20.95 point run. This is still going, but has gone on for almost 4 months now.

another way to look at this is that LEG 4 and LEG 5 should be combined, we will call that LEG FOUR/FIVE:

LEG FOUR/FIVE: 127.14 to 155.65, a 22% increase or 28.51 points - lasting 9 months.

Either way you look at it , 4 or 5 'legs', the moves have become less and less powerful, and the length of each run has more or less been reduced:

% GAIN: 81% --> 36% --> 32% --> 16%  --> 15% or 81% --> 36% --> 32% --> 22%

POINTS GAINED: 55 --> 37 --> 35 --> 21 --> 21 or 55 --> 37 --> 35 --> 29

DURATION: 14 months --> 10 months --> 6 months --> 3 months --> 4 months


14 months --> 10 months --> 6 months --> 9 months.

CONCLUSION: There is mounting evidence that this bull run is at least slowing down. I would be very surprised to see it last more than one year from now, and would NOT be surprised at all if the market TOP is in the 155-160 SPY range (give me 2-3% leeway here). I expect this summer and possibly late spring to be quite weak.  Top calling is a fool's game and is nearly impossible, the trend is clearly up, don't fight the FED, tops are a process, etc, etc, etc ... So that is not my point here. My point is to start considering the short side, at least reduce some long exposure. The bull run will end. I try not to be a market timer - so I will gladly slowly accumulate shorts.

Three posts in one day!!! Whoo boy!

No comments:

Post a Comment