Capitalist Bull's  Instablog

 

If you've been following my tweets, you know that I've been quite cautious with this rally most of the time.  But, 2 weeks ago it seemed the market could sit around and consolidate into a new strong move, but that doesn't seem to be the case as of this weekend.  I do expect the current tightness to resolve to the upside first, but would not be surprised to see sellers come in within the next week or two, if not few days.  So there could be big trading gains to be had, but they need to be protected.  So why the change of stance?

 

1. Low volume - leading stock have been drifting higher in low volume for the past few weeks.  Some will argue that it was due to the upcoming holiday weekend, but I've found historically that that excuse tends to be more of a trap then a valid reason.
2. New bases are either too wild, have extremely low relative strength, or very late stage.  The argument here could be that new leadership is setting up, but you generally want new leadership to setup during corrections and pullbacks not while the market has already made a significant move from the lows, and the late nature of the other bases tends to be failure prone.
3. Many leaders have exhibited mini climactic action.  Keep in mind, climactic action is not always obvious on the charts.  But pay attention if you're stock has had any type of unusually large spike on heavy volume that would be out of the norm for the stock.
4. There have been a bunch of attempted breakouts that have come on low volume and others are failing or have failed pretty quickly.
5. Markets and stocks have been acting extremely erratic intra-day.  In many cases stocks are round tripping there moves 2 to 3 times a day.  This type of action tends to be more indicative of distribution.
6. Market is heading into overhead from the 2006 - 2008 rally.  Again one can argue that it doesn't matter anymore because of the time that has passed.  But, the market fell and then rose so fast, there might not have been enough time to shake out the weak hands.  Usually such severe bear markets are followed by mild bear markets, and we did not get that this time.  So there could still be a large overhang of supply (but this is just opinion).
7. The rally off the recent lows has had very little participation from your traditional fundamentally strong stocks.  Now sometimes it does take up to a month plus for stocks to get going, but the above points kind of invalidate that theory.

 

Right now my game plan is pretty simple.  I won't defy the market.  But I have tightened up my stocks and will take only the trades that do not risk my other profits.  Any large out of the ordinary moves by my stocks will be a sign to sell not cheer.

 

I've been through these types of situation before.  They generally do not end well when they stop.  Especially with recent purchases.  So take it one day at a time and be careful.

 

I can't find any reason to be bearish outside of saying that the market might have a shakeout before it runs.  After another review this morning, many stocks have finally reached their 20dma's.  Others have started to bounce off them.  Some are starting to tighten around them, while others are somewhere between their 3rd and 5th weeks of consolidation to the 50dma.  I'd bet this market is going to wait for the big jobs report on Friday and react to both the ADP (Wednesday) and weekly claims (Thursday).  But the Friday jobs reports could be the catalyst.  I don't see any reason why you should not start taking positions off logical areas of support now.  I do believe if you were to wait for a little more of a confirmation from the market, mainly the leading stocks, there will still be some opportunities if not all the opportunities if there is one shakeout before we run. Otherwise about the only thing that derails this market now, is a piece of news out of left field no sees coming.

Good Luck

The market seems to be in the mood to give investors one more gift before the year is over.  One more tradeable rally before all is said and done.  We've shuffled sideways for the past 8-9 weeks with very few stocks making progress.  But we finally have a tape that typically precedes tradeable rallies.   Here is what I see:

 

•  Large cap tech stocks have held up beautifully and consolidated their gains into new bases or bounces off moving averages.
•  Small and mid caps are leading again with some new leaders and old leaders back at the helm.
•  Overextended small and mid cap leaders have digested their gains and allowed moving averages to catch up.
•  Recent breakouts have held…VERY IMPORTANT FACT.
•  A lot of tight trading action after some wild weeks.

 

Other secondary opinionated reasons:

 

• Fund managers are not about to set off a sell off and ruin their year end bonuses.  Why not try and run it and increase them.
• Too much of an expectation for a sell off…Market does like to fool the masses (hate clichés, but they are based on truth).
• Many investors that are flat or underwater for the year would love to jump in on a rally resumption to try and make something of this year.
• I can list many more, but all you need to do is listen to the news.

 

I don't believe the rally will last very long (2-4 weeks).  The leadership has narrowed further from previous tradeable rallies and the base foundation underneath is shaky.   My plan of attack is to take the trades as they come along, and use my market tops analysis as a trading guide.  As of now it has turned positive for the first time since it's correction call in October. 

 

So The market may finally give investors the climactic part of the rally they have been looking for.  Of course it's all a self fulfilling prophecy as those same investors will be the one's driving the stocks up, with no one to sell back to eventually. Good luck, don't fall in love with your stocks(trades), and I wish everyone a HAPPY NEW YEAR!

Disclosure: Long the Market