The S&P 500 is up 6.5% for the year in 2019. The S&P is on pace to double in 2019. That is just not sustainable. We ran this headline last January, S&P To Triple in 2018, and you know how that turned out. We outperformed our benchmarks because we had less risk on the table last year. We knew the S&P couldn't sustain that performance in 2018 and it won't in 2019.
We have been of the opinion that this market needs to retest the low of Christmas Eve. But, as you know from reading our blog, everyone else feels that way too. That is why we had this to say last week.
Everyone expects the market to find resistance in the 2600-2650 level on the S&P 500 and everyone expects the market to retest its lows from Christmas Eve. When everyone expects something to happen you can expect something else will happen.
Well, we have blown right thru 2600-2650 and closed Friday at 2670. We are surprised we didn't close right on 2666. There is that number again. We have been telling you for a year that we would struggle for at least 9-18 months at this level which is 4x the low of 666. It looks like we have at least 6 more months. The mathematicians are running this market. They set the programs that run the computers. Keep your eyes on the key levels.
We still think that there is a decent probability that the market runs back into the 2800 level on the S&P 500 before turning lower. The trend following funds will flip from short to long spurring the market higher. Hang on. 2740 may bring out big buyers according to Nomura Securities' research. We were fortunate to have bought a decent percentage on Christmas Eve increasing our equity exposure. We sold most of that this week. We think that the market runs into the 2800 level but aren't sticking around to find out. We lowered equity exposure this week and may look to lower it further if the trend following funds push the market too high. A retest of the Christmas Eve lows is in order. That is at 2350 on the S&P 500. That is 12% lower from here.
You can almost feel the fear from Christmas Eve changing to greed or fear of missing out. When we all start to wonder why we ever sold it in the first place and want to buy it will be time to sell again.
Short blog this week but you can read more from our quarterly letter at Blackthorn Asset.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.