It’s been a three-ring circus for stocks since they broke out decisively above SPX 1150. I can tell you that there were A LOT of shorts built up during the grind-up in February and early March.

Guess what? They covered. It was the greatest stop-loss since July of last year.

Next comes the end of the quarter and there is unusual pressures in many markets. Commodities–other than the trading widgets of oil and copper–have been getting slammed. If the economy is recovering, why is this happening. The logic is more than perverse and it only says one thing; deflation and a double dip later this year. But we’ll worry about that later, right?

But stocks, and until today, bonds, have been telling market participants that the sky’s the limit. Short covering, end-of-quarter asset allocation and ribald speculation have been giving us fun. But when they look this good, it is usually too late. Chasing will get you bagged because even just a market pause will send the speculative stocks down 10-20% immediately.

If you’re a trader type, then listen to your gut. It says we are ok into next month but the finger is on the trigger. If you’re an investor who doesn’t stare at your screen all day, then it is time to lighten up as we enter earnings season. Sure, comps are easy versus last year. But have not expectations come too far in relation to stock prices? The technicals say not yet. But this is an event that you should be ready for.

Now that the odd-lotter is “getting in”, the market is going to bag them. Mortgage-backed securities buying is supposed to end next week. Without the odd-lotter, and now that the near-term shorts have covered,  where is the fuel for the next advance?

In the meantime, get used to the word “resilient’…

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NUF SAID…

The new FED Governors Vice Chariman is out making comments. Yellen says:

Mortgage buying effort worked as planned
No inflation
Mortgage rates will stay low
Now is not the time to tighten rate policy

They see exactly what the stock market is doing. But inflation is not around the corner. It is deflation. Have you seen the prices of assets other than copper and oil? Do you think your house will go up in value anytime soon?

Stocks are in the midst of the end-of-the-quarter blow-off. The odd lotters are back and buying anything that moves. Is now the time to buy? Nope. Now is the time to sell…

That doesn’t mean we will stop and reverse down. It simply means that things are getting silly. It’s great fun, but when the upward pressure stops, most stocks will fall while the major averages simply stabilize. Be ready for new setups…Maybe even some shorts…

There is lot’s of news. The economy has “headwinds” and “challenges”. The recovery will be “modest”.

What that means is that there is enough bad news to keep the presses printing and the FED pumping with near zero interest rates for a long, long time.

Yet the government statistics show how much better things were than last year when we were in the midst of the greatest meltdown of our lifetimes.

The Wall Street machine has bought it hook, line and sinker.

This may be all short covering and there may be some “real” investing going on, but after an uninterrupted recovery back to new highs, and this mornings surprise reversal, plus the quarter end approaching–momentum has taken over. Period, end of story…

ADDENDUM: There are so many short setups but I am scared to death to try–just yet…soon grasshopper…soon