When you search Fintwit (Financial Twitter) you are likely to find many, many more stock market bears playing/praying/hoping for a decline than bulls who are always happily long regardless of the news. The latter I call “long always” and the former are attention seekers? In all seriousness, I saw a tweet today from Dan Loeb, the famed Third Point money manager which said “When markets shift, I always say they don’t ring a bell, but they blow a dog whistle. Anyone else hear a high pitched sound last week?” Dan is an investor taught over a long career to follow your process and not get thrown around by the daily vagaries of the markets. Right now, we ask ourselves, “How do we time a potential decline, if it is coming?” Let’s discuss below.
The market does not ring a bell is a truism. In fact, markets usually do not top on bad news or bottom on good news. Why is this? Markets top when the last buyer has bought (covered) and bottom when the last seller has sold (shorted). You cannot time this to the day. Period. Nor should you try. Go back and read our last substack about the 4100 level on the S&P 500 and see the trend change model we use for market turns. It has not signaled yet. We will keep you posted when it does. But, can we look for further evidence of a topping pattern using put and call buying? We think so.