The Top of the Market – It’s For Real This Time!

So it looks like I was a bit wrong when I called the top of the S&P 500 at $1,022.   After going a bit under $1,000, it went on a nice little rally to get up to a peak of almost $1,080 mid-day yesterday before closing at a little over $1,060.    I’m sure there’s a good chance that I’m wrong yet again, but I THINK IT’S FOR REAL THIS TIME.   I’ve got three main reasons that make sense, to me at least:

1) “Be fearful when others are greedy, and be greedy when others are fearful.”  - Warren Buffet

I could link to literally hundreds if not thousands of articles I have seen on Google Finance, etc. etc. in the last few weeks about how this rally has legs.  Only looking at it on a psychological level, this is generally a good sign for a fake rally.    When it is a mainstream view that this is a new bull market, not a bear market rally, after the markets have rallied 60% in half a year, it looks like a sucker’s bet to me.  The real professionals have been in for a minute, and are waiting for all the schmucks looking to get rich quick to get in the market so they can bleed them dry.  It has always been the case in the past, it’s the case right now and it will always be the case in the future.   Remember, when you go to a casino, there’s a few more reminders of how easy it is, and how much you can win than of what you can lose.

2) Unemployment /  Personal Spending

These aren’t one and the same, but they are definitely related.   Currently, unemployment is at 9.7% and underemployment is at 16.8%.   There are an absolute ton of people out of work, and if you dig deeper many of them have been out of work for a minute.    A lot of people who just do not have discretionary income right now, let alone income period.   In addition, many people are being more frugal for a variety of reasons, whether they feel their own budgets being tightened or they feel it is a ‘better thing to do.’   Regardless, a full recovery implies that the economy is back to where it was before the recession began.    It is going to be a LONG TIME before our economy reaches a level of consumption such as that of the past few decades, if ever.    The rally of the past few months has shot so far up that it is implying the market is in fact on the fast track there.   The March lows were a bit ridiculous, sure, but a 20-25% rally from that would imply that we are recovering.   A 60% rally implies that we have recovered.  Big difference there. 

3) “All I know is that this is the first time in the six-month rally that we have seen a reversal to the downside on a positive news day.” – David Rosenberg

This one is somewhat related to the first point.   Yesterday, the FOMC released its statement basically declaring the economy in the early stages of a recovery.  This was around 2 PM yesterday, and shortly thereafter the S&P reached its intraday high of $1,080.  By the end of the day, it had fallen to almost $1,060.   That is a hell of a drop for 2 hours, especially on “good” news.   In addition, the volume of trading really ramped up during the sell-off, as compared to the rise early in the day.   When there is a) “Good News”, b) heavy volume and c) a quick sell off, it means one thing – GET THE HELL OUT.   The big players have found their exit point – if you can mimic their moves, you do it all day long – they do this for a living, after all.

That all being said, since my last post, a quick update on my Roth IRA:

ACTC (Bought @ $0.1265, Sold @ $0.1525) 
The penny stock blues can be a rough game, as this had a huge rally up to $0.17 before coming all the way back down to below my entry point at $0.122 or so.   It had another quick rally based on minor news, and I decided to take my profits and get out at $0.1525.    Kicked myself in the ass when it was up to $0.165 within an hour, but certainly didn’t regret it when it closed at $0.145. 

SPXU (Bought @ $51.75, 09/23 Close @ $44.74)
Obviously I have taken a beating on this one, but that’s what happens when you time a 3x levereged ETF wrong.  However, I hung in there and actually increased my position near the end of the day yesterday.   I’ll put my money where my mouth is and put a risky bet on the S&P Index falling.  However, even if I lose a bit on this trade, it serves as a nice hedge for my 401K index holdings. 

IEF (Bought @ $91.58, 09/23 Close @ $91.56)
Being a counter to my more risky trades, this did exactly what I expected it to and held steady.   Already received my first monthly dividend, so no complaints either way.  I think I’ll keep this one for the long-term to try to balance out any stupid/risky moves I decide to make.