It wasn’t more than two months ago, when the Fed decided to start tapering the QE program by 10 billion a month. The reasoning for the tapering, was that the economy was getting better. The street took the news and went on an all-out, finely coordinated, short squeeze assault on the bears.
The talking heads were cheering that the “Fed got it right” and now the moon targets will be reached without any Fed help. “IT WAS A GOOD THING” After that non-stop push higher that stretched sentiment to extreme bullish levels, 2014 started off a little different than what many were expecting.
Things have changed, as the Fed is tapering the QE program by 10 billion a month. But with the bad NFP numbers and so-so economic reports that have come out, traders believe that the Fed will be forced to stop tapering the QE program. If the Fed decides that the tapering will continue (which I think they will) I believe we are about to embark on a buyer’s remorse trade set up.
We were expecting this low to hit, as we showed Traderplanet readers last week based off of our short term sentiment readings. We did find a low and now have seen the SPX rally some 40 points higher. Based off of our long term sentiment cycle, as well as chart patterns, we are on the side that the true lows are NOT in place yet. But that doesn’t mean we can’t grind higher here and that is pretty much what we are expecting.
The sentiment timing cycles are looking for a top to hit towards the end of February, where we believe the downtrend will resume. The first leg of this push off the lows should almost be complete. A fast push lower followed by another new high, would set up the sell signals we will be waiting for to get short. I am cash-after closing my shorts from 12/31/13 and will wait patiently for sentiment to reach extremes, the timing cycle to run its course and the chart patterns to say start shorting again.
