The answer is usually the right trade to make. I think the easy trade is to short right now. We've been up for 6 weeks in a row, the market is quite overbought and the economy is still in the toilet...therefore the market has just got to collapse any day now right? It's such a no brainier... and that's the problem. When a trade looks so obvious that means a lot of other people are doing it and when a trade is crowded...especially a counter trend trade they tend to be bad ones because there's plenty of stops to get whacked to fuel the trend even higher.
Look for example at SRS, which is double short real estate. Last week it was announced that a major mall operator was in financial trouble and so logically SRS should have soared right? Wrong!! It continued its freefall. Amazingly I still get the sense that there's tons of people STILL bottom fishing SRS even after 6 weeks of non-stop pain. Not a good sign if you are long SRS unless the bottom fishers quickly cash out on the first decent SRS rally.
If you are ever going to attempt to top or bottom pick you need to see capitulatory type action. We have not seen that with this rally yet. The market tends to start off weak and then grind its way higher. That's not capitulation behavior. What I believe would potentially mark capitulation is some sort of significant bullish news that causes markets to gap up sizably. News that would make bears say "shit, this is not good for us, there could be a huge rush of buyers to push this thing much higher". Instead, from what I see most bears keep thinking the rise in the market is a gift to go short. Beware of a market that bears a gift for it may be a guillotine for your head. Respect, its all about respect and the bears it seems have no respect for the market.... they’ll learn to before this is done. Here's an example of what I mean about lack of respect. A trader posted this today:
"I am underwater in srs right now and loving it" .
Huh?? I don't know about you but I don't love losing money. This remark shows that this trader has no fear that his position will come back because he believes the market is in his words "fucked". He's right, it is fucked. But he might just get fucked first because he's not respecting the market.
Despite all I just said, it's never wise to be smart ass. Being up 6 weeks in a row is extreme and so this is no time to be hero if you play the long side.... however, I won't dare to go short on an IT basis until I see the evidence I described in earlier posts. Bears need to show they have taken back control.
March leading indictors will be released at 10 am on Monday. I have no doubt they will show an improvement. I believe however that Monday will be choppy with a downward bias due to option expiration hangover and the market is ST overbought again...but I will be watching the action quite closely. I expect to see an upside blow-off move eventually and that can happen at any time even tomorrow.
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