While it is hard to contain the exuberance of the market and the continuous run, I believe it is time to start laying off the gas here by booking some gains and letting things settle. This morning I took off positions in DE and UNP. DE I added to on an earnings drop which I was long call calendar spreads and then added calls on the drop. I ended up returning 32.65% on risk. UNP consisted of put credit spreads in which I returned 22.11% on risk. Nothing huge to brag about here but these were the long positions I had on and now I decided to take off.
Looking at 3 charts in particular has caused me to book these gains and now lay off and look for other opportunities.
Chart #1
SPX (left side) you can see that we are near the top of a channel. If we bust through the top side I see that being more bearish than bullish as the slope of the channel is high and I believe that a break through would be a sign of too much enthusiasm. Also looking at the McClellan Oscillator you can see that we are at 170 and I like to watch the 200 level for signs of being near a top before a pullback. The blue highlighted regions on the chart mark other times where the McClellan Oscillator hit over 200
Chart #2
/DX (Dollar Index) is getting hit today being down over -0.75%, but zooming out you can see that it is at the bottom of the base and a prior resistance level which could now be a support level. It is also testing the up trending 100ema, which I like to use as a long term reference point for long entries on instruments that previously showed momentum.
Chart #3
/ZB (30yr Bonds) much like the /DX chart. It is retesting its prior breakout/resistance point which could now be a support level.
Overall this is healthy for the market as we are seeing evidence of an outflow of money from the bond market and creates the argument for why we are seeing the market run that we have seen. Its nice to see sector rotation like we have inside the market and even better to see the outflow we have seen in the bond market to the stock market. But looking at the 3 points highlighted above of the chart structure (of the SPX, /DX, /ZB), I believe they all compliment each other as showing that it is time to slow down the adding to long equities trade and raise your stops or cash out (depending on your time frame).
