Weekend Ramblings

Anytime the market makes a new 52 week high I like to get a sense of what the crowd is thinking. Are they embracing it or are they shunning it? I see a bit of both but more of the latter. This morning on BNN I saw a few pundits/fund mangers basically throw their hands up in the air saying "I give up. You have both the European and US fed providing unlimited intervention and so you don't want to fight that". One guy talked about how this is the most hated bull market ever (something I've been saying for some time) and there's scrambling going on by fund mangers who are underinvested to get exposure before the quarter is over. They are buying grudgingly and in a somewhat panicked way. That to me suggests there may be weak hands getting in at the same time when the most stubborn of the top pickers have been blown out and so that could set the stage for a ST shakeout soon. On the other hand, there is still no shortage of anger and resentment from those who have been on the wrong side of the market since 2009. Still no humility, still the same angry, condescending quips about Bernanke from those (and there's plenty) who have been trampled by this bull market.  I expect the permabears like Zerohedge and Hussman to go ape shit with their commentary this weekend.


This type of market situation is very tricky. It's very difficult to chase the market when it has spiked up like this but at the same time as I said the other day,  NEVER short a market that has just made a fresh multi-year high no matter how overbought you think it is. In late August I saw a few people claiming to have made bold trades betting against the market. One guy who goes by the name "optionsmygame"....ya right.... claimed to bet his entire HELOC on Sept 72 QQQ puts at around $5. Those puts are now worth $3. If he wasn't bullshitting and actually did this trade, he is screwed big time unless the markets tank huge next week. I talked about how I've been seeing too much top picking lately despite some warnings signs of a ST top. Seems like too many people were still trying to game the top and the "September is the weakest month of the year" trade and now they are wiped out. Once September options expire next week, we may have seen the last of the top pickers cleaned out for good as they have been blown to bits these past few weeks while late to the party fund mangers chase stocks before the quarter is over. That would make the market ripe for a shakeout in early October but you can never underestimate the stubbornness of these top picking losers...I'll be watching for evidence of such.

So, sooner or later there will be pause and perhaps even a big shakeout but if you look at this from a longer term perspective, there's still plenty of room for the market to go a lot higher. I've been saying the following ad nauseum for a while now....Bull market tops in the past have been marked by high confidence and tight monetary conditions. We have the complete opposite of that right now. Everything from consumer confidence levels, equity fund flows, what your neighbors think about the economy, the books you see in the business section at Chapters and anecdotes from the media all indicate without a shred of doubt that there's pessimism not confidence out there. Next you have monetary conditions which are the most accommodating in history. This suggests conditions for an ongoing bull market are still quite strong.  The thing that would potentially sabotage this bullish cocktail  would be if there is some major disaster in fiscal policy. I suppose the "fiscal cliff" could be such a thing but from my experience, any major concern as telegraphed as this fiscal cliff ends up turning out to be a non event. Y2K fears is a perfect example. The reason why such fears never come to fruition is because of the fear itself....it motives a swift response by authorities to defuse it before it becomes a reality.

So the big question is what do you do now? At this point any buys you make need to be LT ones such that you could be a strong holder if right after you buy you get caught in a market shakeout. Know yourself. Keeping some powder dry or hedging will help you be strong holder.  I made a bigger commitment to hwo.to on Thursday which is the only position I hold right now. I still have a sizable cash position to offset it though. I have a couple names on my radar but for the sake of prudence I won't be in hurry to add to them unless I see the market settle down and I get the price I want. I may also put on an index hedge soon.