As expected in recent posts, the markets churned a methodical, momentum driven slow grind to the upside this week.
However, the real frustrating part in anticipating the next move will come next week in my opinion.
Where am I standing?
I believe the market will take the path of maximum frustration – Continue higher for couple more days next week, possibly a big head fake move up. And then when finally all the momentum drags key indicators to extreme overbought, drop! Drop could be small or it could be big. I will take some time to study if it is going to be a mean reversion mode drop or a surprisingly mild pause ushering in a new intermediate uptrend like what we had between Feb and April of this year.
Currently I still have my prior mentioned shorts opened and will close them in the next drop I am anticipating, no matter how mild it is, even if that means I have to take losses. Luckily, the portfolio did not suffer much due to a very strong showing by the long stocks in my portfolio – DBA and DLTR. Also, surprisingly to my relief, one of my shorts CRM did not participate much in this week’s rally.
Oh and if you were following me on Twitter, you may have noted I opened a new long position in WYNN today. It’s a short term bet and planning to close it by next week upon due appreciation.
A Few Tells
Here are some of the relevant technical indicators in the current market and what are they hinting towards:
- CBOE Equity P/C Ratio – Trending below 0.6 area. But could still go lower due to upward momentum in the market.
- AAII sentiment touching 50% bullish. AAII hasn’t reached this high level of bullish reading in the entire year of 2010. Not even during the Feb through April uptrend of this year. On a side note – many retail traders are expecting a big drop starting Monday. Hence my theory on path of maximum frustration mentioned above.
- McClellan Oscillator is hovering around the area where you cannot be comfortable intermediate long but at the same time, it does not negate further short term upside due to momentum
- VIX:VXV ratio is pretty low but still has room to go lower, indicating a bit more fuel to the upside but not much perhaps
- NYSE 52 week highs/lows reached “overbought” levels and is now slowly trending down
- Lunar cycles are generally in flat to down period
Good weekend, ye all!
I want my $46 TNA print… We can fall off the cliff after that, don’t care 🙂
SR – Nice post. Where’s the data supporting many retail expecting a big drop starting Monday?
TIA.
Yogi, thanks. Its more or less an inference derived from several sources that are not all objective. I use a combination of several statistical sentiment survey indicators (more objective), reading the stocktwits stream of all the users (more subjective), put/call ratios (objective), technical indicators (objective), analyzing trend data (somewhere in between), reading forums on popular sites like marketwatch, cnbc (subjective), etc. etc.
Glad I was long WYNN as it behaves spectacularly today and providing balance to losses in my CRM short position.
As posted in Twitter earlier today, just went long SSO. Now I am equally hedged between longs and shorts.
Still looking at selling out from longs in the next two days. If the thesis of eventual pause/drop this week doesn’t work, I will still be glad to be long hedged although I would have losses on my shorts positions.
Also note the pre-FOMC factor in play tomorrow – regardless of announcement, generally stocks behave positively at least till the beginning of FOMC meeting.