Sentiment and Divergence

I’ve been sitting out much of this recent market levitation for a few reasons:

  • My sentiment in February was that we were nearing a top at the 135 resistance on the S&P (here), hence some calendar spreads turned out to be badly timed. It was time to reassess what I was seeing on the charts. A low volume risk-on climb day after day and given reassuring corporate profits, employment, and sentiment numbers, the bulls had a decent argument. They still do in fact, even with a pull back to 135 on the S&P we’ll still be solidly trending upwards. As Europe (re)emerges the bears are finding their way haltingly back this week.
  • This parabolic rise in AAPL simply looks like a classic end-of-cycle bull market to me, as mentioned here. You can’t stop hearing/reading/watching AAPL pundits. That screams, ‘bail’. Nearly everyone holds and continues to buy AAPL. It used to be that the Apple faithful were geeks arguing against the behemoth Microsoft. Now the financial community has taken up the kool-aid. I don’t believe the two mix well. Where $AAPL goes the market is likely to follow.
  • I’ve also been watching Europe, while living here. Greece, Spain, and Italy are serious problems both socially and economically. Besides the obvious election year politics in France, pushing the periphery onto the media back-burner, and the LTRO, have clearly been market-risky. The sovereign spreads are starting to widen quickly again and we’ve seen this story play out before. Very recently ‘parity’ was being whispered, and quickly avoided with the X summit. I expect more summit’s this summer. The Euro is so closely tied to the peripheral-risk, that no-one has any idea how bad it might really get, how long it might take to rebalance, or what solutions have fundamental effects. The risk on sentiment is only being played out on the equity markets or in dollar lending. The euro and euro lending is on ice. What impact will this have on the US markets is unclear.

Yesterday the QE3 ‘reassessment’ was striking and missing the gold short trade was clearly a mistake and still resonates in my head this morning! Add the falling euro too falling gold, no QE3, high oil prices, a low VIX and I’ve plenty of arguments to hold off the bulls atleast until the S&P pulls back to 135.

I’m going to continue holding my 140/135 bear spreads I mentioned here. I’ll be also watching gold closely as the levels I mentioned here have been triggered. The $SPY feels toppy again to me, will I be right this time?

Good trading.