Still Cautious About This Rally

I’ll admit I missed out on yesterday's rally completely. I kept waiting for a clearer bottom formation to appear and it never showed up. When the market opened higher today I just watched from the sidelines as it roared into the close, thinking the markets would sell off. I suspected on Monday that we may be drawing a line in the sand, but didn’t act on it at Monday's close, fearful of more downside. That’s all in the past and one must focus on what is happening now.

Yesterday was strong, as volume rose across the indexes, however there are some glaring problems with where this rally is starting from. The Tick is at its highest level ever, indicating overexuberance on the buy side. Yesterday’s action will be irrelevant without some constructive backing and filling. If we open strong out of the gate, I could see us moving another 200 points before encountering some resistance. This, in my opinion, is the worst case scenario for longs as I would then expect a strong reversal.

However if we drop and fall constructively, we could then climb a wall of worry and maybe we could possibly get a decent trading rally. The put/call ratio is still pointing to the option players being very bullish. Traditionally they are wrong at important turning points. I shorted a few stocks at the close with very tight mental stops and will be quick to take profits should the market drop at the open. I would be very careful getting too long here as all signs are still pointing down as of yesterday’s close. This could change over the next few days, but be aware of all the “bottom” callers out there. The more times you hear this, the more likely this rally will fail very quick.

Comments

[sheople:]

Our money maestros spent more borrowed-printed enticement money on the dow again. Hmmmm...wonder how much they'll spend again today. Let's all jump in.

Mar 11 07:46 AM

[oldmaninPA:]

Does anyone have a time horizon of more than a day anymore? Silly me for thinking stocks will likely be higher a year from now and the world is not ending.

Mar 11 07:49 AM

[Seeking Advice:]

Good points. I scaled back on equities some time ago, significantly reducing my holdings and have been looking for some sense when it might be safe (or safer) to begin thinking about scaling back in. I've resisted previous bottom calls as I did not believe the economic fundamentals could support a sustainable upturn. I still don't see much call for economic optimism any time soon, but the equities market can move somewhat differently. A rally of such force to me usually is suspicious as it is when it moves very sharply to the downside.

Mar 11 07:52 AM

[AndrewBaker:]

A day is a long time in the market at the moment, and taking any long position without checking on it several times a day, is not wise. The more times a bottom is called, the more times we will see a lower bottom. We haven't caught up to the reality of the moment and are still looking at historical figures: Dow 5000 is not only possible, but barring some good news event I can't think of, is likely. Whether the sun shines or not, keep your shorts on.

Mar 12 08:58 AM

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Apr 03 03:32 AM