Sometimes in trading, the most well thought plan ends up looking just plain stupid in hindsight. You say to yourself, “why the heck didn’t I realize that before I put the trade on?” You cringe as you have to cover your position on what was obviously a big mistake.
But pretending you didn’t make the mistake doesn’t help. All you can do is fix it, and drive on.
Which is what is happening to me this morning. Yesterday I laid out the case for the US stock market to roll over. Then I woke up to a double whammy of Central Bank easing.
The first was Mario Daghi who went even more “all-in-er” on his commitment to raising inflation expectations as fast as possible. In a speech at a conference in Germany, Draghi sent signals that more stimulus is coming. The market immediately sent the Euro plunging and European stocks soaring.
Then the PBOC (People’s Bank of China) followed up with a surprise cut to their interest rates. That sent all stock markets around the world soaring.
On that news, I immediately covered all my equity shorts. I might think that valuations are dumb, but I am not going to fight the avalanche of liquidity that is coming.
In hindsight I am pretty mad at myself. After the G20 meeting, I wrote about how something big was in the works. It was dumb of me to try to top tick the S&P 500 when I thought the rest of the world was on the cusp of reflating.
This morning, I have covered my short equities and also decided to give up on my short CAD. I have bought a little more gold and silver outright. I am still deciding how to play this, but I am giving up fighting it from the short side of the equity market. We might roll over from here, but there is also a chance of a melt up. The risks are through the roof. We aren’t trading on fundamentals anymore, but instead are focused on how much printing the various Central Banks are doing, and trying to decide where the money will go.
The chances of a mania have increased. The bulls will be even more emboldened with this break out to the upside. They will justify the price action by claiming the fundamentals are outstanding. There are times when it makes sense to pick a fight with them. With the taps being turned up from the various major Central Banks, I don’t think today is the time.