Finally I'm somewhat settled into my new home. I gotta tell you...don't ever move unless you have to. It's such a pain in ass but it's going to be a nice change going from a 1 bedroom condo to a 2 storey detached but along with that, more work and money to maintain. Our house isn't very big but my office sure is. It went from a crammed den to a room about triple the size with my desk facing a large window. I have so much empty space here to fill up! I foresee a TV and plant in the not too distant future. To my right there's a door that leads outside to a balcony in case I want to go out and get some air. I'm loving this....a lot! We're still not completely unpacked and we still haven't received/hooked up all of our appliances but we're getting there. The cat is just now beginning to get over his trauma. Poor Willy.
Anyhow, enough about me and my insignificant life. It looks like I was correct about the bear trap and now here we are knocking at the door of SPX 1200. The persistent strength in the market has even the bulls surprised, but that folks is what the market does. It was the same with the bear market in 2008...it tanked well beyond what most bears expected and a lot of them missed out on the move from 1100 to 666.
Payrolls came in on Friday at 165K which was slightly below expectations. I'm already seeing the badly burned permabear retail trading community dismiss this due to census hiring and distortions from bad weather in February which is true but all this does is keep the bears on their slope of hope. How ironic is this because it's the bears who like to use the phrase "slope of hope" in reference to the behavior of bag holding bulls during bear markets. Now it's the bears that have been on their own slope of hope holding the bag on the short side as they cling to their "low volume" and "PPT" crutches.
About 3 weeks ago I said
I think at least 2-3 weeks of further marginal upside or sideways action is in store before enough bears have been shaken out and enough weak bulls have been sucked in before the next correction begins.
Well, here we are 3 weeks later and the market has acted like I expected. Have we seen enough bears get shaken out to finally get a correction? hmmmmm...we're pretty damn close I think but given the tendency for the market to hit round numbers Dow 11K and SPX 1200 seem likely. I mentioned a few weeks back that the permabear retail trading community appeared to be trapped in April puts. Those puts are now pretty much decimated and so once complete capitulation has occured the market won't have any more of these broken backs to climb higher on. We're probably close to complete capitulation however, it might take a move slightly over 1200 to really do the trick. The risk reward it piss poor to play this but if you look at the alternative i.e. shorting after a fresh 52 week high you are just begging for a head handing. A rule I follow religiously because it works almost every time is to never ever, ever, ever pick a top or bottom no matter how tempting when the market has made a fresh 52 week high/low because odds heavily favor that yet another 52 week high/low is right around the corner. Besides, at ST/IT tops you typcially see at least 1 week's worth of topping action and so there's no need to top tick.
In addition, at ST/IT peaks and troughs, you typically see recklessness on the part of options traders. In the case of top you will typically see about 1 week or so of heavy call buying even when the market is not making much upside progress. This is a sign of greed and it almost always gets punished...sometimes not immediately but shortly afterwards. We aren't seeing this yet although today there was indeed quite a bit of call buying (but the market did have a solid up day so it's at least somewhat justified).
I was scanning a ton of charts of individual stocks on the TSX just prior to when I moved and I found many that looked good. I was swearing a lot today to see that quite of few of these names took off big time without me on board thanks to me being distracted with moving. Oh well..no use crying about spilled milk.
Bottom line. We're red lining here on this upside move since early Feburary
but untill the market shows signs of rolling over you have two choices: join in or step aside. Don't ever step in front of a market that has made a fresh 52 week high/low unless you like to lose money.
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