The Easy Money Has Been Made
By definition there is no ‘easy money’ in financial markets. Making money requires taking risk, risks that sometimes aren’t even fully understood by those who are taking them. However, if there ever were easy money to be made it was a few weeks ago when the S&P 500 made a higher low and literally everyone and their brother was bearish and leaning on the short side of the equity market:
S&P 500 (Daily)
We penned a number of bullish pieces in late-September and early October highlighting the pervasive and extreme bearish sentiment among market participants. As it turns out our contrarian inclinations turned out to be spot on.
The situation is much less clear after a 160+ point rally in the last few weeks. The crowd is turning more bullish and the bandwagon short sellers are covering their losing bets and moving to the sidelines again. Moreover, there is a thick layer of resistance facing this market just overhead current levels (SPX 2040-2070).
While I still tend to think the odds favor some additional upside in equities before year end (~5%), the risk/reward is much more balanced and gains are likely to be much harder to come by.