Timing That Top or Bottom?  Forget it! (Unless Perhaps You are Gaming the Fed)

We would all love to continually call tops and bottoms in markets and be correct. After all, with that ‘magic’ we could never lose, right? Sell at the exact height of a bull run, get in at the bottom of a bear move. While that can be possible to do from time to time, nobody can call a top or bottom correctly on a regular basis. With so much emotion, psychology and irrationality there is just not a clean path to calling a top or bottom. Charts and technicals certainly are helpful identifying reference points, high/low volume areas and zones of interest.

A serious question: Should the Fed and their comments be the impetus for a market top or bottom? Is it a coincidence the market bottomed out at end of September near some very dovish Fed comments, or perhaps topped out this week after a rather hawkish tone from six Fed Governors? To be sure, the Fed cannot be happy with this modern day version of Pavlov’s Dog.

This past week had many scratching their heads at the market action (as usual). Could the big rally be over so soon? 250 SPX points and now it’s ready to go up in flames? I’m not so sure that is the case, but with the big dips on 3/5 days this week it certainly caused some worry to re-appear. After all, volatility had been smashed down from the high 20’s in late September to a paltry 13% only a month later. However, talk of a potential rate hike gave the bulls the shivers, and after such a huge run in a short time, who would blame anyone for taking some profits, especially when the removal of the Fed’s ‘punchbowl’ is being threatened. Now the VIX is showing some fear once again, back in the 20’s and showing signs of a surge to come.

We could certainly lay some blame to the market’s weak August/September performance at the feet of the Fed. It seems all too obvious. Some could argue the market is the ‘tail wagging the dog’, the Fed making their choice to back off rate hike talk based upon the stock market blues (or other excuse like slowing global growth or China woes). This past week was a different story altogether, some Fed governors out with some of their boldest rhetoric yet about a rate hike to come before year end. The last meeting of the year is in a month, and with so much data before then it seems rather foolish to make a prediction, but it seems the market cares little.

Rather than looking to sell a top or buy a bottom, the best odds are playing the trends when established and confirmed. There will be plenty of time and opportunity to profit from either side of the trade, but only if you’re willing to be patient and wait for it.