It’s Too Crowded

One of my favourite Yogi Berra quotes was in response to a question about a restaurant: “Nobody goes there anymore; it’s too crowded.”

Everyone seems to agree that the market is overbought, sentiment is insanely positive, leverage is excessive and that the flow of funds has been unbridled – in short, that the long trade is too crowded. If so, who’s still buying?

Stocks have ignored most every opportunity to correct – whether technically or fundamentally driven. It’s the kind of behaviour we often see around OPEX and year end when the algo tractor beams typically take hold.Do the algos have markets firmly under control, or might investors come to their senses?

continued for members…As we say most every day, today’s ramp job has been brought to you by VIX, which is not surprisingly breaking down through the latest straw man TL…

…CL, which is magically still above its SMA10 for a whole month now… …and USDJPY, which is still backtesting higher.If SPX and ES are to reverse at their 1.272 Fibs, we’re almost at the next turning point: ES 3730.25 and SPX 3720.37. They are currently slightly out of sync – SPX is about 2.2 points higher than ES at the moment. But, regardless, we’re roughly 20 points away if ES’ Friday highs hold.That’s a single day of trading if the bulls get their way. But, with OPEX still 7 sessions away, it seems likely we’ll get some consolidation first in order to postpone the tag.

The leading candidates would be the red 1.272 at 3692.81 as the SMA15 200 crosses it in the next hour or so or next Tuesday when the red TL crosses it. If ES should drop below 3692.81, then it’s most likely headed for the red TL sooner. Worst case: it could backtest the little red wedge bottom at 3654.50 or the wedge top at 3668 – the current SMA10. From there, the bullish case would be a rise up to the 1.272 around OPEX or the end of the year.

As many have pointed out, December is typically a very positive month. A meltup by CL to 50.22 and USDJPY to 104.74 at year end would normally support a ramp into Dec 31. Though there are a few arguments for lower and one interesting argument for higher.

The “higher” argument is RSP – the equal weighted S&P 500 – which argues for a 3.8% rise from here.This would equate to roughly 3845 in ES/SPX – which doesn’t really align with anything special on their charts.

The “lower” argument is well represented by the financial press and the texts, tweets and emails I see daily. The put-call ratio is lower than it’s been since early 2011.The commodities-to-equities ratio is similarly bearish.

And, sentiment is elevated – though not to extremes (and this is a poor timing tool anyway.)Then there’s taxes. If you’re sitting on sizeable capital gains thanks to the Fed having blown another bubble in stocks, you might be inclined to realize those gains in 2020 rather than 2021 – when rates might be substantially higher.