We were delighted to get such positive feedback last week as several readers enjoyed our blog post. Several readers thought that we should spend more time talking about family issues and how it relates to money, spending and investing. Thanks to all for their feedback. We look forward to relating real-world personal money issues with real-world solutions in the coming months. The bulls ran from the market last week as it was the first real negative week of 2019. It had been quite a run from the lows on Christmas Eve. Markets are now oversold on a short term basis but have a ways to go on the longer term charts before they are oversold. Next week is an options expiration week and the March OPEX is historically volatile and leans bullish. We could be in for a rocky ride.
We have been riding the hot hand of Charlie McElligott over at Nomura. His latest research tells him that the bulls may struggle here a bit as the corporate buybacks go into hibernation for the next few weeks. Corporations are locked out from buying back their own stock in blackout periods before the release of their earnings. Bulls may have a tough time getting along the next few weeks without them. Also of note from Charlie is that momentum and quant funds, which now are the driver of markets, may begin to bet that markets head lower and their selling may depress the market. The marginal buyer/ seller in the markets today are all quant /momentum funds. They sold the market lower in December and got short on the lows. That gave rise to the market in January as they were forced to cover their shorts. If they begin to short the market at current levels, that could produce a longer and stronger move lower. A pullback for the market would be very healthy and if the Fed continues to talk soothingly to markets, investors will be there to buy the dip in a replay of the QE trade. Also, corporations will be back after the blackout and be indiscriminate buyers of their own stock.
As a reminder, we are still flirting with the 2666 level on the S&P 500 which is just about 4x the lows of 10 years ago in March 2009. We noted the idea in early 2018 that the bulls have struggled to push markets higher at 2x and 3x the March 2009 lows of 666. The S&P 500 has spent about 18 months at each level. We suspected that markets may struggle again for 18 months with 2666. We are on month 15.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.