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The Seduction of Betting Against the Sure Thing

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The buy-the-dips mentality has become so entrenched over the last few months that it’s hard to imagine what could possibly derail the bull market. Wall Street feigned mild concern for a few hours over the spread of a deadly virus in China, but absent news that Americans are keeling over dead from it in their back yards, we can expect the broad averages to forge higher.  The uptrend has been so relentless that it has come to practically guarantee a quick return for any investor who jumps aboard on a given day. In no instance during the last three months has any bull  suffered a third straight day of losses.  A strategy as simple as buying the S&Ps whenever they are trading lower for a second consecutive day has been a spectacular winner.

Contrarian Bloodfest

This has only increased the number of contrarians eager to bet against a trend that has come to seem nearly as predictable as tomorrow’s sunrise.  The more contrarians who get slaughtered, the more enticing the seduction of trying to pick The Mother of All Tops. We prefer to use AAPL as a  benchmark — not to pick THE top, but to nail lesser peaks that can reward short-term bets on the ‘Don’t Pass’ line. But even hitting the swings perfectly has not been paying off lately. The stock is currently in its tenth day trying to get past a 319.92 Hidden Pivot target we’d identified earlier, but there has been only one pullback from this number deep enough to nudge put options slightly into-the-black. Now, if the stock closes above 319.92 for two consecutive days , look for a run-up to at least 336.35. The broad averages cannot but follow suit, entranced by the seeming invincibility of the world’s most popular stock. The contagion of exuberance may not be fatal like coronavirus, but its long-term consequences could prove more significant.

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