[Editor’s note: The following excerpts are from a longer piece by Kevin Muir, formerly head of equity derivatives at RBC Dominion and better known for his exploits as “The Macro Tourist.” The full piece is available exclusively to his subscribers. Those interested can check out the new MacroTourist here.]
Markets are screaming higher. Everything is going up. Heck, even our beloved commodities are flying. It’s turned into a risk-buying-frenzy.
For the bulls, it feels great. Just buy something – anything – it’s bound to go up.
Although I think a year from now, we will be significantly higher, the trader-in-me is worried. At the risk of mixing timeframes and muddying my message, I am getting more defensive. I’ve been fortunate to have a good year. For the most part, I didn’t fight this rally, and have taken good chunks out of it.
But, I am scared that it’s become too easy. We all know the story of JFK father’s shoeshine boy tip signaling the top in 1929, but today we have that in spades. One of my buddies recently recounted how his doctor’s receptionist is day-trading Tesla making $4k a day: “It’s simple, really, just buy Tesla in the morning, and sell it in the afternoon.”
Yup. She’s right, it has been that easy. And good for her. When it comes to Tesla, she’s been correct, and I have been wrong. It really is that easy.
However, given the lopsided nature of sentiment, it wouldn’t take much to get a good shakeout. People often forget that in bull markets, there are quick, sudden, out-of-the-blue 10% to 20% corrections.
The current environment is looking more and more like 1999 (which is something I have been calling for), but don’t forget that in that massive rally, the last year saw seven short corrections of more than 10%!
We are due for one.
And that’s all that I am saying.
This is not a sell-everything-we-are-about-
I know market pundits are also excited because Santa Claus is coming to town. But if you look closely at this phenomenon (the fabled Santa Claus rally), you will realize the bullish anomaly is centered around the last week of December and first two days of January. So, I am not worried about “missing” Santa.
If I had to “pick” a potential catalyst for a correction, it has to be the US dollar. As you will remember, over the past few months I have counseled against those who claimed speculators were “too short” USD and it was bound to snap back. Well, guess what? The specs have been spot on correct and the bulls have gotten crushed.
But we have reached USD oversold readings from where we have bounced in the past.
Just to be clear one more time – I am not changing my long-term stance. I am not touching my retirement accounts. I am still long-term bullish on commodities, inflation and even stocks.
Yet, the trader-in-me thinks it’s time to lighten up in my levered accounts.
I’m not levered, unless you count the voluminous consumption of Oregon pinot noir.
It does “feel” like we are “due” for an air pocket in the range of 10 to 20%.
For a piss-ass ant retail investor like myself, could be an awesome opportunity to throw sand on that beach fire pit, increase the cash share of the portfolio, walk back to dry lodging, and let the tide refresh.
Air pocket and then the opportunity to return to the beach and spark that fire back up.
So awesome: “I am still long-term bullish on commodities, inflation and even stocks.” I appreciate the musing from Mr. Muir that are posted here for our consumption. Thank you for sharing these.
As a Controller for a winery, I really appreciate your first sentence!
Everytime I do that, . . I’m wrong. Lol
Why do the experts try to predict the market and the next correction? It’s a guess. Trade what you see, not what you want to see. When it rolls over, get out.