Brute Force

The market responded to a plethora of good news today.

More people were hired than were fired for the holiday season. People are spending money this holiday season. China stopped stepping on the throat of banks this holiday season. GS raised GDP estimates this holiday season. It is the first day of the month in the last month of the year, during the holiday season. And the FED gave the ECB another trillion dollars this holiday season.

This is not your Christmas rally. Not yet. Ben Shalom Bernanke gave the world the most joyful Hanukkah present ever.

We’ve been on record saying that the up cycle that began on September 1st has ended and that we are now, again, in a trading range market. Our new range is similar to the summers SPX 100 point range with the exception of being 12-14% higher and at the top of the yearly range. Even after today’s action, most indices are in a new 100 or so point SPX range, though the Dow Transports have broken out–giving Dow Theorists a woody.

This kind of action, based on the news–real or imagined–is a novel concept. The markets are supposed to be a discounting mechanism toward future earnings or macroeconomic fundamentals. Never mind that it is the holiday season, where, during a 6 week period, a full one-third of the year’s business is done. The first day of the month was front-loaded with a another trillion hard dollars from the FED and the ECB, and trillions more in “soft dollars”. Today was a bigger stimulus than QEII and the market’s reaction was larger and more substantial as well.

This holiday season was progressing satisfactorily before today, yet the fundamentals from the worlds banking system remain the root of all our economic problems. Today’s action simply papers it over, again. There will eventually be a day of reckoning. But not now and not after more market insanity. But the investor attitude of “risk off/risk on” based on daily, weekly or monthly stimulus is the height of “Money Manager Mental Illness”. Now everyone will be playing follow the leader, so extremes will be reached by option expiration. Then, when we least expect it, capital gains and dividend taxes will be raised. But it doesn’t matter at this moment. Use the insanity to your advantage.

We are still long approximately 25 stocks and recently shorted 1. We began to sell some of the stocks bought in the summer and raised the stops for most. This insane risk-on rally will be my opportunity to sell almost every stock and prepare for the next cycle. Remember, my plans are intermediate term in nature, not short term. I will have several new stocks to buy highlighted over the weekend, but this is the kind of market where I’m happy to create a taxable event, payable next April.