Weekend Ramblings

Well, Friday was about as much of a non-event day as you will ever see. GDP was right in line with expectations. The highlight of this week is the QE announcement on Wednesday and the chatter out there is whether the market is going to sell on the news. I think an upside breakout is coming but before that it wouldn't surprise me to see a little head fake move to the downside first. I'm just guessing here.


I said in my previous post that money based indicators are not confirming the "too much bullishness" message of AAII sentiment. I've been harping for weeks about the top picking exploits of the permabear trading community which is preventing a correction. Admittedly this is anecdotal; however, the Rydex ratio provides hard evidence that the market timing community has not been chasing this rally much. At ST and IT tops of the past, they typically do indeed chase the market.

I posted this same chart in mid September when the SPX was 50 points lower. The Rydex cf ratio is just about the same as it was back then...it's only marginally lower. Look at how stubborn they have been. The market is one more good rally away from challenging the YTD highs and these guys are nowhere close to being as bullish as they were back at the April high or even August high. There's 2 ways to look at this. 1) The market is not done going up 2) Any correction from here will be rather shallow UNLESS these Rydex traders aggressively buy on the dip which typically doesn't happen.


Looking for the top has become an obsession out there and I've been sucked into it as well. I probably waste too much time talking about it because the stocks I currently own have been fairly non-correlated with the market. I've done quite well with them overall since taking positions a couple months ago....too bad they weren't full positions though. One thing I'm noticing is that small cap Canadian oil service companies that have ties to horizontal drilling have been showing great charts making new 52 week highs on no news. I own 2 of them right now tec.to and psv.to. tec is very ST overbought and I will be looking lighten up on Monday. A couple of other ones out there I'm looking into are esn.to and wzl.to. All of these companies are going to release earnings reports within 2 weeks. These companies are still fairly cheap, have great charts and a positive trend in fundamentals....they are in the sweet spot. These stocks are thinly traded however and are not for the faint of heart but I gotta tell you, I love these small cap stocks not only because they can move so explosively but because I find they move more predictably. You start to develop a "feel" for them. I also believe that since these stocks aren't included in any ETFs, they tend to be less correlated with the market and it's this detachment that allows the charts patterns and market action to be more reliable i.e. subject to less whipsaws and head fakes.

Happy Halloween everyone!