Distribution, by any other name…

We proposed to “lighten up” almost 2 weeks ago as the frenetic Sept/Oct rally was at peak strength. Since then the major indices have done nothing. Absolutely nothing except spike up a little, then back down. Or down a little and then back up. This is classic distributive action after a powerful and extended move higher.

In the span of these last 2 weeks, all manner of traders, investors, economists, and prognosticators have taken the recent market action as a reason to be bullish. The most common refrain is “Don’t fight the Fed” because there is a trillion dollar Treasury buying stimulus coming.

This renewed market optimism comes again AFTER the market has rallied. What is it going to take to get through to most investors? We are not living in the 1990’s anymore. We are not living in the times of unlimited momentum. Sure, it can last a little while but it cannot continue in our current economic environment. The macroeconomic backdrop eventually DOES matter, especially in the toxic one that we continue to languish in.

I’m not going to sit here and tell you about trade imbalances and Chinese Fetus Soup. That is all too complicated for me. What I do know is how to function within the market cycles. I do know what languange the market is speaking and if its lying or not.

All the news of a new Congress, of QEII, and how great corporate balance sheets look is well known and built in. All the news of the banking and housing mess and the disaster that our government is, is also well known. the only thing that matters now is free money and how much. And that only matters on a day to day basis.

For those of you that accumulated during accumulation. Mazel Tov. You’ve got guts and have been justly rewarded. Use this distribution time to take your profits and lighten up.

For those of you who waited until you were “comfortable” to start buying, after a 15% run, you may get a little pop. But you are late and will get bagged if you do not get out when the getting is good.

And though I like to sell when a stock pick reaches its target, it still irks me to see it fly 13% higher in one day. OII…I sold mine but if you are still holding, raise your stop to $59 and continue to ride.