Will It Be That Obvious?

Hey Market Pilot,

The market is not healthy and we know that. Apparently, so many people know that the put/call ratio is super high and not backing down yet. With the wall of worry being more like the side of a skyscraper, it seems logical that the market closed in a weak way on Friday. In fact, one could argue that there has been a bear flag in the S&P 500 (SPY) in the last few days and that the market is about to fall to new lows.

But that is the easy and obvious move. The market doesn’t like to be easy and obvious. And with so many people on the bearish side, the market actually seems primed to go the other way and make a lot of people wrong (for a moment).

Let me be clear that I do not have a strong opinion of which way the market is going to go in the next week or two. My eyes and sentiment tell me that the market is hanging on by a thread and should move lower with just a nudge. But as I said earlier, what if that is too obvious? When too many people are stacked on one side of the market, it tends to indicate that there is no one left to keep pushing it in that direction. With so many people bearish and hedged up the wazoo with puts, there is a lot of kindling laid down for a short-covering rally.

One event on the calendar which could move the market is the Federal Open Market Committee (FOMC) on Wednesday. It is pretty much assumed that the 50 basis point rise is off the table due to the Russia conflict. The prospect of them not raising rates is tantalizing, but the Fed is running out of options and I believe they need to show they are ready to start taking action to address inflation. Therefore 25 basis points is what everyone is expecting as it is also what the Fed has communicated they will do. 

Then of course there is Russia. We saw Friday morning that a little bit of good news (even if not accurate) can spike the market. So if legitimate good news that traders have a hard time ignoring really comes across the wires, that could also be the spark that lights off a short-covering rally.
It is going to be an interesting couple of weeks as the market looks like it wants to go lower but has been having a difficult time doing so, and the stage is set for a reversal that catches people flat-footed.

Your Profit Pilot, TG


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