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Tuesday, November 10, 2009

Market Thought... prudence

Everywhere I read or hear today market gurus are indicating "the market will continue to rally simply because the big boys are lagging and need to purchase stock." I am not an insider, so I do not know the dynamic of the structured 'money management' game, so this could be true. But I do know this, every time I hear bullshit like this, I want to sell into the strength.

Think about what this means for a minute. It means no smart person in the game can think of a fundamentally good reason for the markets to rally, so they are using the dynamic of the biz to justify a higher price. To me it is troubling, and increases the risk to trading this market.

Yet the market finds itself in a scenario of lower risk. The VIX continues to decline to the lower end of its current trading band.

When the VIX spiked I stated to buy the market, and I am happy I was right. But the move has now been made.

The SP500 is approaching 1100 again, and prudence simply dictates to take profits or protect. (I chose profits this go around.)

The SP500 is getting overbought as well. Along with overbought individual names, like AAPL and GOOG. In fact the few market leaders that are not overbought are the financials (even GS).

The financials are in an interesting situation. Despite the market hitting new highs, they are at a point of resistance. They will either break out or ride a negative trend. (The negative trend is fundamentally supported by the new accounting rule that will bring off-balance sheet assets to be accounted for by Jan 21st, i think.)

The overall set up has not sold me on the concept of 'the market will go up, just because'.

I would protect any dividend /long-term holding via selling Calls against the position, and have been selling my trades. And depending on the action w/the banks and market tomorrow, I may short the market for a trade.

One trade I will consistently take on however, is the TBT. The Fed will continue to issue more paper, and every time it does the rates rise. And they rise to a higher high. The Fed will no long participate in the auctions, and this will put upward pressure on rates. For this trade I take my ques from the 10yr yield. It is near support, worthy of an initial position.

The rate may move to the upper resistance of the negative trend line. If it keeps going lower, I will add to the TBT but I do not think the SMA's or the mid 3.3% support line will be broken downward.

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