Ever since moving this site to a more standard blog format last September, I have been able to write more articles, more consistently. In that time, I hope I have delivered some value to those listening out there in the blogosphere.
Now, it is time for a partial hiatus as I attend to personal and professional business over the next two weeks or so.
I leave you for now with my current “lazy” thoughts on where we stand in this complacent market:
- The dollar’s two day spurt back toward the top of its six-week range was impressive. This action demonstrates that the 50-day moving average (DMA) will provide strong support for the dollar as expected. However, I still expect the June highs to hold as resistance. If that resistance manages to melt away, the dollar will likely go on another extended run. On-going uncertainty regarding the path to resolution for Greece’s debt problems remains the main near-term catalyst for the dollar. Without it, the dollar resumes its longer-term decline given the Federal Reserve’s persistent dovish monetary policy stance. At best, I am expecting an extended trading range.
- The stock market remains extremely over-bought. The percentage of stocks trading above their 40DMAs (T2108) sits at a lofty 82%. While the steady climb day-after-day appears comforting, it is also seductive. I have duly noted the amazing heights of complacency exuding from the bulls who now expect the S&P 500 to climb to 1250 in short order. Perhaps this is not surprising given everything the market has overcome in the past year to now sit at 17-month highs. However, I stick by the rule that low-volume buying begets high-volume selling; weeks of gains can be erased within a manner of days once sellers finally get motivated. Thus, this is not the point for establishing new longs. If a trader insists on buying into this move, use patience and/or buy “catch-up” stocks. “Catch-up” stocks have lagged the current market move, and they become more and more popular as a “cheap” way to participate in a rally for those who feel the train has left the station without them.
- Traders trying to short this market need to focus on particularly weak stocks with poor news flow and/or stocks that have clearly failed at strong resistance levels. Otherwise, shorts will require substantial cushions. While I am pretty confident the selling will come, there is no telling when it will start given the current up-trend and stubbornly persistent over-bought levels.
- The good thing about this complacent period is that volatility remains low and puts are relatively cheap.
- The first quarter ends soon. Look out for performance chasing.
- Another earnings season approaches. The last two earnings seasons have precipitated substantial selling, strong enough to suggest near-term tops had occurred in the market. Given the market has recovered both times, I am expecting a milder reaction to earnings in April…absent some significantly negative news of course.
As always, be careful out there!