Let’s start this post with a great quote from the legendary investor Warren Buffet: “Be fearful when others are greedy, be greedy when others are fearful”.
Since the US Presidential elections, the SPX has risen from 2139.6 on November 8th, 2016 to 2271.7 on December 13th , 2016 which constitutes a rise of 6.17% within just over a month.
The rise has been fueled by the expectations of tax cuts and enormous fiscal spending intended to boost inflation. In turn, the FED is most likely to raise rates at a quicker pace, which has sent the US Dollar Index to 13-year highs.
With this in the background, almost everyone who invests have all gone long in hopes that the markets will continue to rally. After all, there are many who have forecasted lofty targets of 3000 and above on the SPX for this year. This extreme optimism has led to the markets being skewed on the long side.