Seeking Alpha

Sentiment Speaks: FOMO 'May' Strike Me

by: Avi Gilburt

The market is at interesting inflection point.

The market will still likely top out and provide us with a big correction.

The next day or two will tell us if the market top will occur within the next few days or head to new highs before the bigger period of weakness.

For those following my work for some time, you would know that the market breaking below 2880SPX back in the fall had me raise cash because it suggested that a 20-30% correction was likely beginning. And, in December, when we were calling for the market to drop precipitously from the 2800SPX region, I provided a downside target in the 2250-2335SPX region from where I believed we would see a rally back to at least the 2800SPX region.

In fact, even before we bottomed in December, I was discussing with my members the potential that we could even see a higher all-time high in the rally from our expected bottoming region, with the potential to target as high as the 3011-40SPX region before breaking back down to the 2200SPX region.

So, during the fall, I put my cash to work on trading the downside, as we were able to identify many downside trading opportunities, which caused one of our The Market Pinball Wizard members to comment at the time:

I must say it is absolutely sick how you guys call virtually every turn in the market. This is just not normal. . . Suffice it to say that the annual subscription is a small part of the swing trading profits I’ve made.

It really was a trader’s environment, and we truly were able to take advantage of it. And, once we approached our downside target in the 2250-2335 region, I expected to see a rally back up towards the 2470-2520SPX region. While my initial expectation was that a rally to that region could still send us back down into the target below one more time, when the market pulled back from that region in a corrective fashion, I began looking higher to the 2600-2680 region from the 2445SPX region.

From there I expected the market to provide us a corrective pullback before heading up to my ultimate target of at least 2800SPX. But, the pullback was terribly small and the market continued higher without providing much of a pullback at the time.

So, as the market rallied through February, I set an “ideal” target zone of 2865-2885SPX for the rally off the December 2018 lows. And, the market is now there.

However, the structure with which we have now rallied to that target has opened the door again to the potential I was mulling back in the fall of 2018 – that we can still approach the 3011-40SPX region in the rally off the December lows. In simple terms, 2830/45SPX is now support. If we can break down below 2830SPX without breaking out through 2910, then we can begin to confirm a larger degree top by next week.

While I will leave further specifics for my members at this time, I will note that if, instead, we see more of an acceleration higher over the coming few days, it will place the market in full FOMO potential, and point us up towards the 3011-40SPX potential I was mulling many months ago. And, as amazing as it may sound, a rally that high can still point us back down to the 2200SPX region, and I won't bore you with the technical details as to why.

So, as we stand today, I have seen many misrepresent my positioning over the last 6 months for whatever reasons. So, to make it rather clear, the market is now right back where I raised a significant amount of cash before we broke down in the 20-30% correction for which I was calling. Since that time, I was able to put that cash to wonderful use in shorting the market down to the December bottom, and taking quite a few long trades in the market on our way up to the 2800SPX+ region I expected off the December bottom region. Moreover, we also put that cash to use on a great trade on TLT we entered just below 113 in the fall as well.

So, as we sit here in the region at which I initially raised cash, I will likely have a decision to make in the coming few days as to whether I am going to be putting my money (which has now grown substantially during the last 6 months) back to work on the long side for a rally to 3011-40SPX, or if I am going to bide my time and look for a short trade with the bigger focus on a better buying opportunity at much lower levels for the rally I expect to take us eventually to 3500-4000 over the coming 3-4 years. It is the market action we see in this region over the coming days that will provide the clues for the coming month.

You see, markets are not linear environments. To understand how markets work, one must accept that we deal in probabilities within a non-linear environment, so we must utilize a non-linear method of analysis which places those probabilities on our side of the table. This method allows us to recognize the potential for larger movements before they occur, which means we do not have to be stuck in a “buy-and-hold” strategy forever. I mean, one does not need much “advice” to simply buy and hold forever. But, if your goal is price improvement, then clearly a buy-and-hold strategy is not for you.

So, over the coming days, the market is going to provide us with strong cues as to which way the next 100+ point move will be. We will be listening very closely, as I suggest you do as well, based upon the parameters I have noted above.

But, in the bigger picture, not much has really changed in my perspective. I still see us in the 7th inning stretch of a longer-term bull market, which will likely take us to the 3500-4000SPX region by 2022/23 estimated time frame. And, ideally, I am still looking for a much better buying opportunity later this year for that final rally, and have been able to increase my initial cash balance over the last 6 months with all the wonderful opportunities the market has provided to us during that time. Now, we have to find the right time to put it back to use as we sit in the exact point at where I had initially raised cash, especially as the market is sitting at an inflection point as I write this update.

Please Note: I apologize, but I do have to leave my proprietary annotated charts for members of my services.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.