Investor 'Sugar High' Becomes 'Sugar Crash'

|
Includes: DIA, QQQ, SPY
by: Steve Reitmeister

I am highly amused by the different reactions that took place after the FOMC Meeting Announcement. In particular day traders acted like hyperactive children at a birthday party. Instead of screaming for more cake, candy and cola they pounded the table for more stimulus. So when they saw the Fed leaning more in that direction they pushed up the Dow by 100 points in just minutes.

Investors came in a bit later to find the traders crashing from the “sugar high”. You could say that the investors were like the parents who needed to clean up after the children’s mess. What investors heard from the announcement was “if the Fed is ready to use more stimulus, then economy must be a LOT worse off than we suspected”. From there the traders rally was deflated and the market ended the day in the red. It will be interesting to see which sentiment prevails going forward.

I personally did not read it as positive news for the economy or the stock market. That does not mean sell everything and head for the hills. It means this recent leg of the rally is probably nearing an end and we are likely to head lower in the trading range. That corresponds with my taking some profits yesterday and why I held onto my ETF short. Add it all up and I am now only at 65% long the market (versus 80%+ a week back).

I realize that most every technician on the planet is buzzing about how we cleared important levels and this market is about to zoom to the moon. Certainly that is a possibility. I just don’t think the highest probability.

Right now I think 65% is plenty long for now given my economic and market outlook. Can quickly adjust in either direction if need be.

Today’s Train of Thought

(After the market closes is when I like to kick back and read the important investment articles of the day. Here are links to them with my 2 cents added underneath.)

The Coming Standoff Between Home Buyer and Sellers

Somebody wake me up 2-3 years from now and let me know if bottom took place in the housing market as I dont see it anywhere on the horizon now.

The Fallacy of Explanation

More often than not the day to day movements of the market can best be explained by "S&*t Happens". Best to pull back to longer term trends to figure out how to attack the market.

The FOMC Statement

The market did a double take on the news yesterday. At first traders were celebrating stimulus as means to boost economy and the market. As that buzz wore off more people realized that if the Fed is ready to act, then we must be in a world of hurt. That is when the market retreated nearly 100 points. Will be interesting to see what happens tomorrow after everyone sleeps on it.

Disclosure: No positions discussed