We have now officially hit the highest levels in the market since the Lehman crisis first hit back in 2008. With all the artificial buying spurred on by the fed buying spree, we are rocketing so high so fast we could get to the point where we have a short term equity bubble. When you gap up after a huge run you will typically be getting close to the end. We will not call atop here, but this is what to look for.
Once you get to overbought levels and you gap higher you next need to look for another huge day that rallies up only to reverse on huge volume and closing on its lows. It’s a standard blow off top pattern that has to occur at some point because stocks can’t go straight up forever. They have to digest gains and profit takers will show up.
No way would we try to pick a top and short like a few are calling it because you want to be on the side of the trend.
We are most likely seeing a mad scramble by shorts covering their positions and this could happen for some time. Fear sets in on the upside just like it does during massive selloffs but this time those panicking are the shorts and the fund managers who can't time the market like we do and are now chasing after performance and underperforming their bogeys.
Let’s enjoy the ride while we can and look for that heavy volume reversal day which could happen within the next few days. After the dust settles from that pullback we will be looking to pull the trigger again on some premium position.
Here is what our positions did today
Everyone has been calling for the demise of GOLD but GLD gapped up big having its best day in sometime and closed at all time highs
CACC is officially off our life support list. Its chart has healed nicely and is close to new highs
SBUX looks like it is up another 5% in the aftermarket
DISCK If this one trades any lower we would close out on Friday
TLEO has hit new highs!!!! Ramping nearly 7% on Thursday. We are now up over 9% in the last month. The stock has just finished a nice base on base pattern and brokeout to new highs. Remember that breakout traders are just starting to buy here where we are looking to book profits. We say sell them ½ of our position using a trailing stop of 11 cent below Thursdays close and lock in a big gain. We will move our stop to breakeven on the last portion. We now have another free trade on with nice profits in the bank
FCEL is finally getting some gas and was up as much as 10% intraday. Volume was decent as well
GS-We are up 8 points on GS in the past week. We will be looking to lock in some profits soon on this one as well
At such overbought levels the risks of initiating new positions at this point largely outweigh the potential returns over the short term. Let’s have patience here, enjoy all of the open position profits we have been racking up before anyone else was buying this market and wait for the next high probability entry point. This next entry point should be one of the best in some time. Be careful here!
Disclosure: no positions