It’s been a nice run and the bulls have pretty much had their way the last 6 weeks. The market is up an astounding 24% since its March lows. I am not surprised at all given the historic oversold conditions in early March. I predicted one mother of a rally and was fortunate enough to position my swing trading account to capitalize on it. But as of Friday I’ve taken more of a neutral stance and actually began taking some profits and putting on a few hedges. I’m not trying to call a top to this move but have simply reached my objective and “ringing the bell” as buyers chase prices higher. My objective is strictly technical. The SPY has resistance at the 88.00 level (87.74 Feb high) and the XLF (the sector that started this Bull Run) has major resistance at 11.50. I suspect we might see some smart money taking profits and the Bears trying to regain control at these levels.
Another reason I’m becoming more neutral is market sentiment. A few weeks ago all the chatter from top traders and market analyst was bearish. I mentioned in our Live Service that I thought the run had more legs based on the vast amount of negative sentiment in the marketplace. Commentary on major financial networks and popular blog sites included bearish lines like “dead cat bounce”, “retest lows”, “taking profits”, “it’s been a good run but…”, and “nothing has changed fundamentally”. And yet the market just kept powering higher. Jesse Livermore once said “It is what people actually did in the market that counted – not what they said they were going to do”. And no doubt over the next two weeks people bought stock. But over the last week they are starting to play a different tune. Now I’m hearing things like “train is leaving the station”, “bears are throwing in the towel”, and even “maybe buy and hold isn’t dead”. I might be reading too much into it but it appears the bulls might be getting a little too giddy for my liking.
All that being said, it is our job as traders to react to what the market is telling us by its behavior and this market has not shown any sign of weakness over the last six weeks. My partner Steve frequently quotes Art Cashin that “chance favors a prepared mind” and at this point all I am doing is locking in some good profits and “preparing” myself for what might lay ahead. (A sleeping grouchy Bear).
-Andy
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