Just before New Year’s, when the S&P 500 large-cap index was struggling to stay above 1800, Goldman Sachs made a bold prediction to its clients. The S&P 500, they said, would end the year 2014 above 1900, and would reach 1950 by June, 2015.
When the index slumped to 1732 in early February, Goldman was looking like a gang of hopeless optimists.
Seventeen weeks later the cash index, the SPX, closed at 1949.44, half a point below the target and one year ahead of schedule. 2015 got here early. Let’s party!
What Happens Next?
We’ll try to answer that question in a feature article this coming Wednesday. In the meantime there are three things we think you should remember about this market:
First, don’t go short. Obviously the market will turn at some point and there will be a thunderous retracement. But you don’t know when that will happen and neither do we. Wait for some indication that the rocket is running out of gas before you jump in on the short side. If you want to stay solvent, you can’t short a market making new highs almost every day.
Second, don’t go long. You can’t short a market that has only two down weeks since the February low. But it’s pretty hard to go long here too. We still have an upside target around 1972, and we think it will get there and perhaps much farther. But even a quick glance at the chart shows much more room on the downside. Scalping trades on the upside have a good chance of making money. Long-term investments, not so much.
Third, nobody knows what is going to happen. This is uncharted territory. That’s not figure of speech, it is literal truth. We don’t have any past performance to guide us up here in nosebleed country, no established resistance levels we can use to get out bearings. We don’t know where we’re going, because we have never been here before.
We are riding a bull that is well into its fifth year, and has almost tripled its starting value. So bide your soul in patience while the market shows us where it wants to go. This extraordinary rally is tempting. But before you jump back in, make sure you can get back out.
SPX monthly chart
