Still quite some complacency around, time to sell the rally, hedge & swing trading again

 On Feb 1st during the market open hours, I mentioned that “the strong resistance of S&P 500 is in the [4550 4600] range”, which means, there is a high probability that the market will rebound from the panic selling to “build the right shoulder to complete the head and shoulders structure, but the right shoulder will very likely be lower than the left shoulder”. Last Wednesday (Feb 2nd), S&P 500 rallied and fluctuated in the range of (4544.32 4595.31), and was closed at 4589.38. It was indeed a good opportunity to short the rally then and swing trading, especially on the ones with strong speculation in natural but poor or worsening fundamentals yet still very high valuations, basically the ones good at telling fancy stories and painting big cakes which do not deserve still way too high valuations.

 

A paragraph on Sunday mentioned that “six high rank Fed officials came out last week, with most of them intended to appease the market”, that is, the Fed will have to take practical actions to suppress the very high sticky inflation (the most important political task before the mid-term elections), but still would like to avoid the disorderly correction of the equity markets through very delicate management of the market expectations, as the negative wealth effect will have too much impact on the consumption-driven real economy. Today, with S&P 500 closed at 4587.18, within the afore-mentioned strong resistance range of [4550 4600] again, which shall likely be another good opportunity to sell the rally into. It's unlikely that S&P 500 would be able to rally through the big resistance around 4600, and even if it does, it would be very difficult to sustain, thus just present an even better opportunity to sell into, or going short on the very speculative yet still much overvalued ones. The central banks of the developed economies and most emerging markets shall likely have to tighten the monetary policies during the time of weakening growth, such as, the Q421 pretty much all-time-high US corporate profit margins will inevitably be squeezed somewhat during the time of very high sticky inflation, and earnings multiple contraction will be surely the overall trend going forward, especially in the near future.

 

I posted this paragraph several times (please also see my WeChat Moments): 【During the discussions here on Jan 1st, I firmly opposed all-in or take overall long positions in A-shares, and warned that “the current market risks are much higher than the potential rewards”, “maintaining stability is the current top priority, but there is too much complacency around... The Shanghai Composite Index has a good chance to drop to 3480 again, if not lower”】.

 

Again, it's better to substantially lower investment yield expectations and take a very active defensive approach, especially during the first half of the year, and likely “During the next one or two years, swing trading, timely hedging and relatively appropriate asset allocation have become much more important”.