After six uninterrupted weeks higher, we are “overbought”. But technical terms mean a lot less nowaday’s unless they are adapted to the current market structure. Overbought means “buy to extremes” and we are clearly in the land of overbought extremes.
There have been 8 Bear Traps where a spike to range highs follows what looks like a market rolling over. It has been preceded by continued weakness in the dollar (DXY) which is down 8.5% since Sept. 1. But the SPX’s gains have outpaced the dollar’s losses as the SPX gains have been almost 13%. So the SPX strength is far outpacing the dollars weakness. Hmmm…
October’s long awaited Option Expiration is tomorrow. The hedges have been sufficiently burned. The shorts have been sufficiently toasted and the doubters are now believers–regardless of the facts.
With the election ahead and the holidays after that, many prognosticators will talk about “green shoots” and ignore everything else. After alll, it is the seasonally strongest time of the year as well as a great time to delude oneself.
With all this overwhelming strength, we cannot expect the market to get hammered. How about a test of the breakout at SPX 1130? That is almost 50 SPX points lower and would qualify as a correction. But market breadth for both the NYSE & Nasdaq have broken out. Maybe a correction could bring it back down to earth, but the fact is that internal breadth usually turns down before a correction, and it has not yet done so.
So we must ADAPT our tactics. Instead of selling outright at our CALENDAR target, simply raise your stops in all your handsomely profitable positions. If we get a decent pullback, then the market will lock in our profits. If we keep up the “Gentle Parabolic Insanity”, then we will be along for the ride. But don’t sell your yield stocks as you will need them.
Make sense?
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