Why One Trader Thinks The "S&P 500 Just Topped Out For The Summer"

Following days of vocal and in some cases quite vivid warnings and predictions that the resent record ascent in the S&P is unsustainable and is set for a sharp correction from some of the most prominent names in finance including Howard Marks, Paul Singer and most recently Jeff Gundlach, here is Bloomberg's Mark Cudmore who has now also cast aside his recent bullishness, and in his overnight Macro View piece warns that we may have seen the highs of the S&P for the summer, if not the year.

S&P 500 May Have Just Topped Out for the Summer


Summer market dynamics lend weight to the theory that the S&P 500 may have put in a multi-week high on Tuesday. 


The index’s price-to-book ratio is at its highest level since 2003. Yes, it’s been up here since June and it was way more elevated from 1996 to 2002, but it now matters because the mood has suddenly turned.


The catalyst for the sentiment shift has been North Korea, but that’s rather beside the point. What’s important is that it’s the height of the American summer and nobody is going to be phoning in from their vacation to hastily buy the dip in U.S. stocks. Not when valuations are so stretched.


Many punters don’t have more capital to put to work anyway, with retail cash piles at their lowest level since 2000, according to survey data from AAII. The implication therefore is that many market participants are away from their screens and the majority of marginal standing orders must be stops to reduce exposure, rather than add.


Into that environment, the S&P 500 on Tuesday finally broke through its July 27 record high on the eighth day of trying. That caused a spike that will have stopped out a chunk of speculative shorts. And then the market promptly reversed before the end of day. Those bears will be forced to now chase the market lower when they check in.


Not to overplay the value of seasonal patterns, but there’s an intuitive reason why August is by far the worst month for the S&P 500 over the last 20 years -- people don’t like fighting the market from the Hamptons.


As a marginal extra negative, the Nasdaq and bellwether tech stocks failed to validate the latest leg higher in the S&P 500, which will disproportionately increase the number of bearish analyst notes, further fueling a negative spiral.


manZman Wed, 08/09/2017 - 06:29 Permalink

if I had a $ for every time I've seen an article on ZH saying the S&P has topped out, I could've made a good chunk of change shorting the VIX...

Fiscal Smegma Wed, 08/09/2017 - 07:34 Permalink

Great point, I just closed up my house in the Hamptons and am headed for Martha Vinyard and have about 300 Million in stops set as I will not be looking at my trading screen for 3 weeks. 

Akdov Telmig Wed, 08/09/2017 - 11:49 Permalink

The S&P 500 has not only topped for the summer without obviously any catalyst to go through the psychological barrier of the all time high reached August 08, but also it's in for a major correction starting in September with the Fed's balance sheet normalisation and the debt ceiling brawl around the corner. For those who think than the catalyst will still be the CBs manipulations,  just remember that the Fed language has changed, they now speak about generous valuations in the stock market for the first time in 10 years,  plus the we have your back no matter what rhetoric has been replaced by you're on your own now.Which is a major swing in the Fed's language, so don't count on the CBs to prop the market this time they have been sending warnings than by any metrics we are in the last stage of the biggest bubble in history. 

Akdov Telmig The_Juggernaut Wed, 08/09/2017 - 12:37 Permalink

It's just my 2 cents of course, but anyway it's what I think and I'm positioning myself accordingly for the next big move in September, namely I'm short the S&P 500 and short USD/CHF.Besides, I've constantly beaten the market this year so it's why I'm confident in giving my advice, sorry if it sounds pompous and you don't need to thanks me I'm glad in doing it for free dude.

In reply to by The_Juggernaut

The_Juggernaut Akdov Telmig Wed, 08/09/2017 - 13:15 Permalink

I was only mocking the absolute predictions in your first sentence.  In thirty years of investing I've found that predictions like those are made by people who get beat up badly by the market after eight months of good returns in a bull market have convinced them that they can predict the future.  Best of luck to you. As for me, rather than try to predict the future, I'll wait for stop-losses to trigger any exits.  That, and hedges, will carry me through again.

In reply to by Akdov Telmig