Investor Positioning

Last week and this week.  Two tales of news, price, sentiment, and investor positioning. 

Last week:  1) The week starts with relief that the Greece vote had the "good" team win, ended up being a nonevent, relief that a supposed bullet (to me, a rubber bullet, to most others, a silver bullet) was dodged.  ES 1340.  2) More relief that the Fed didn't do nothing (worst case scenario avoided), and gave the market what it wanted, like it usually does, and the market didn't have a sell news reaction.  This much relief opens the door to future angst.  ES 1352.  3)Angst happens.  Philly Fed disappoints.  ES 1343.  Goldman fronts run their short call to cover at lower prices, and the market keeps falling.  Usually the opposite happens with these Goldman calls.  A bearish sign for upcoming days.  ES 1321. 

This week:  1) Angst over the EU summit fearing nothing will be done, market gaps down big on Monday and selloffs intraday.  ES 1308.  2) Two days of low volume bounces as the nervous already sold on Monday, and now the bargain hunters take over.  ES 1326.  3) A return to angst on Thursday because Obamacare was upheld by the courts, viewed as a negative by investors.  ES 1308.  At this point, most investors are resigned to a weak close of the quarter, and heavily positioned in cash.  Merkel cancels press conference fueling rumors of a EU summit deal.  ES goes from 1307 to 1323 in one hour.  4) The details of the deal come out, totally unexpected, ES up to 1340 in overnight session, Europe continues to trade strongly despite monster gap up, ES goes up to 1347 for a monster 24 point gap up at the open.  Shorts cover like crazy, underinvested hedge funds panic buy to keep up with the averages, FOMO takes over, they don't want to miss the train.  The ES choo choo train high on hopium.  Monster moves in crude oil, gold, euro, and a huge squeeze at the close.  ES 1358.  This is not relief, but hope.  Hope that the worst is over and that we'll start a new uptrend with this EU summit news. 

We had a net 6 point move, from ES 1352 to 1358 over 6 trading sessions, and went from angst over the Greek vote, to relief that it didn't bring disaster, to anticipation of Fed action, and delayed disappointment and weak economic data to bring back angst.  Angst goes more extreme with fears of nothing happening at the EU summit, and then Obamacare being upheld increases the fears even further, and then we get the rescue.  This is not relief, but surprise and hope.  Hope that the EU has kicked the can far enough for the market to rally for at least a few weeks, which is all the hedge funds are asking for to keep up with the averages. 

We are back in the hope part of the short term trading cycle.  That is dangerous considering that the rally off the June 4 low is now 4 weeks old.  We are now vulnerable to another intermediate term downtrend like May 1 to June 4.  This EU deal has brought on a lot of hope, that Germany will bailout the southern Europeans.  But the global economy is too weak to have a sustained rally from these levels.  Crude oil and copper tells me that clearly.  You can get jumpy hedge fund money to buy here, but that's about it.