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wallfns
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I have been part of the markets for ~8 years, primarily working through my own account. My financial education comes from extensive research and trading experience.
  • "Bull", Call It What You Will 0 comments
    May 1, 2013 3:33 PM

    When trying to understand market internals, the main question I ask myself is why is the SPX making new highs, yet only about 100 of the 500 underlying stocks are making new highs? Why is it when the Dow made new highs, only about 10 out of the 30 stocks made new highs? Why is it that the Nasdaq screamed to new highs yesterday and the largest companies in the Nasdaq (AAPL & GOOG) were not close to there all time highs.
    The answer to these questions is that the indices are manipulated by the futures markets and in order for the bulls to get out intact with their large profits they need to sell out of their positions at a higher price. And what better price to do that, than at fresh highs. The bulls are quite smart, they are not greedy and know when the apple is ripe for the taking and boy there are some sweet apples on the tree right now. The bulls are not going to risk losing there 10-15% returns on this year just to make an extra 5-10% on the upside that is not proper risk management. The bears however have for the most part been in hibernation for a long time now and are getting hungry. You can almost sense it in the air, the bulls understand and know this. Some would have you believe that the bulls and bears are constantly fighting it out between each other. A fundamental part of the market is that the reason these 2 great animals have been able to coexist for so long is that they get out of each others way when the time comes. For example if we examine the last month's volume, there has been an increase of volume as the price goes down and a decrease of volume as the price goes up. That is a shift in the amount of bulls remaining and the amount of bears waking up and moving in.
    The last example I can think of for this bull being over is there was a day back in March when there was a spike in volume and the price did not move much. That was a distribution day. When the bulls that got in at fresh lows back in 2009, when the the majority of investors thought it was crazy to be buying the SPX at 700, look to exit there positions. They do it quietly and that is a distribution day. You can see the day on the chart below.

    (click to enlarge)Distribution Day At these current price levels the upside on the market seems to be somewhat greedy considering we are already up over 15% for the year. It would be wise for the remaining bulls to slowly exit with there profits and let the bears come in and eat for a bit.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I am short the S&P E-mini June contract

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