Party Like It’s 1999?

Random Thoughts

Since the market has decided to go straight up, I’m fielding questions about exactly when it will stop. I dunno and I don’t care. I just hope it keeps on keeping on longer-term.

The Ps (S&P 500) shrugged off an opening gap reversal (OGRe) to close at all-time highs.

Although off of its best levels, the Quack (Nasdaq) tacked on nearly 1 ½%. This was plenty enough to put it at 14-year highs.

The Rusty (IWM) tacked on just less than 1 ½%. A couple more days like this and it will be back to all-time highs. Unbelievable.

Anything with the word “Health” in it or related to it has been parabolic lately. Health Care Plans, Health Services, and Drugs have been on fire. Biotech took a little breather after a major gap to new highs but like the rest of the bunch, it has been going straight up as of late.

Even some areas that appeared to be left behind are now coming back with a vengeance. The Semis are a great example here. They are up over 15% since their lows 13 days ago.

Aerospace/Defense stocks are banging out new all-time highs.

I can go on and on.

The rally isn’t contained to tech or exciting areas. REITS, Utilities, and Regional banks are trading like the dot coms in ’99.

All isn’t rosy in the world though. Gold the commodity continues to implode, closing at its lowest level in over 4-years. This action has it breaking down out of a major 2-year base on a weekly chart. The Gold stocks also imploded to new lows. Ditto for Silver/Silver stocks.

Getting back to the overall market and most sectors, the question is, is this rally sustainable? No. The market will need a breather. This does not mean that you should be a hero and try to jump in front of the freight train (i.e. short it). It does mean that it a dangerous time to hop in mid-stream (i.e. buy it). If you have any existing longs, enjoy the ride and take partial profits if your initial profit target has been hit.

I’m often asked who “they” are when it comes to market participants. See my recent “Usual Suspects” column. It doesn’t matter who they are but it can help you to wrap your head around things. Nearly all shorts have likely been squeezed out by now, so that buying is complete. The bottom fishers no longer have a bottom so that buying has likely exhausted itself. This leaves us with the Johnny-come-latelies. Those who will buy, throwing caution to the wind for fear of being left behind. Unfortunately, they are often the last in and the first out—the so called “fast money.”

So when will the market correct? Again, I dunno. Since I’m a pullback player, when the market goes straight up, the correction usually comes the day after I get emails like: “What if the market never pulls back?” Or, “I’ve given up on waiting for a daily pullback…..so now I’m trading pullbacks on the 30 minute charts.”

It’s the nature of the correction that will be important. If everyone runs for the door at the same time, it could get ugly because the market has given us the mother of all fakeouts. Conversely, if the correction is orderly—small in size and duration–then the market can get back to the business of making new highs.

So what do we do? The beauty of following a methodology is that you always know what to do. This doesn’t mean that you catch every zig and zag. It means that you have a plan. You know not to jump in just because the market is going higher. You wait for setups. If this is the real deal, then a few days isn’t going to make that much of a difference. As usual, let the ebb and flow control your portfolio. Enjoy the ride on any of your existing longs via trailing stops and honor your stops on any leftover shorts.

Best of luck with your trading today!

Dave