I have no idea who is throwing cash into this highly overvalued stock market to push it higher right now. Any registered financial advisors or pension managers who are buying into this stock market right now are in serious breach of their legal fiduciary duty. While there’s likely a modicum of retail daytraders and momentum-chasing “hedge” funds chasing the upward velocity, I have a an educated hunch that the Fed and the Treasury’s Working Group on Financial Markets – headquartered in the same building as the NY Fed – are behind this insane thrust higher in the S&P 500 and the Dow.
But as Shakespeare once said (in Macbeth) “nothing is but what is not.” Beneath the facade of the S&P 500 index spike up over the past 2 weeks, smart money appears to be unloading long positions before this “Titanic” hits the iceberg (click to enlarge):
With good reason, too. If GAAP earnings were calculated the way they were calculated 20 or even 10 years ago, the p/e ratio for the S&P 500 would be at its highest in history. Furthermore, “smart” investors would not be chasing stocks higher while earnings and revenues are declining, as they have been for several quarters.
The on-balance volume and positive volume indicator signals in the graph above show an extreme divergence from the direction of stock market. This indicates that – away from the key stocks used to push the S&P 500 and Dow higher – big money is unloading stocks while the SPX/Dow appear to show strength. It’s brings to mind the “Rome burns while Nero fiddles” metaphor.
In the graph above, you can see that the S&P 500 appears to be carving out a pattern similar to the path it took from last August through early November, before it dropped off a 12.5% cliff. No one knows if this same pattern will repeat, but there’s always the chance that the Fed is trying to push the S&P 500 back up to its 200 dma (red line). We’ll know if this gets accomplished soon enough.
Meanwhile, it’s still possible to make a lot money shorting the stock market as long as you are “nimble.” On Monday mid-day, I emailed my subscribers with what I call a “quick hit” trade set-up that had developed in Big Five Sporting Goods ((BGFV) – click to enlarge:
The suggested trade was to buy puts or short BGFV before the close on Tuesday and cover it or sell the puts right after the open on Wednesday (today). I had some additional analysis to support the trade idea. BGFV actually “beat” its earnings number but it required some hard-core GAAP engineering to accomplish this. Revenues were in-line but the stock was hit for over 18% at the open today.
Several subscribers emailed me today with their success on this trade: “Good call on BGFV. Scalped it twice…Thanks for this trade, 117% return in less than 24hrs, not too shabby, lol…Got small position in the $12.50 puts just before the close. Sold this a.m. as instructed for 112%…We did this trade-our first with your service–and got a little better than a triple!!
You can subscribe to the Short Seller’s Journal here: LINK or by clicking on the image to the right. It’s been a difficult stretch for shorting this market but most of my emphasis and ideas are focused on longer term trade ideas (12-18 month). I always include ideas for using options with specific examples.
The intra-week email “alert” was not originally part of the service but I tried it out several weeks ago and had a great response. I only send them out when I come across an idea that merits doing so. Finally, SSJ subscribers will be able to subscribe to the coming-soon Mining Stock Journal (hopefully Friday) for half-price.