THE MARKET POSITIVES AND NEGATIVES FOLLOWING A MANIACAL MONDAY
There are times when the market puts together a rally that under normal conditions would be seen as a very good day. However, due to circumstances the rally is greeted with the same enthusiasm as a herpes outbreak. Today was one of those circumstances.
From my perch, it seemed that a majority of traders were looking to either short this rally or build up greater reserves of cash.
You could see it in the volume. No longer can volume be used in the typical A)Low volume = bearish B)High volume = bullish way that traders managed to profit from eons ago. You know what the ultra-low volume that we saw today indicates? Absolute fear. It means that every fund manager, analyst and retail trader hated what they saw today to the point that they either held onto their shorts or just remained in cash. That's a good thing for the bulls.
The market has scarred, maimed and vamoosed enough individuals and institutions to the point where 300 point up days are passed on.
I won't go into the fact that we basically gapped up near 300 points on the open. Welcome to the new normal of 2011. Unless you are willing to step in front of the freight train as it is sliding down the tracks, you have to chase your opinions up or down. The market either reacts with a gap on the open or in the last hour of trading. Again, the new normal in the insane asylum that has become Wall Street.
I'll tell you what I didn't like today:
- The action in bonds stunk. Since I am long TMV it stunk even more.
- It would have been encouraging if the Euro would have held on a day that was supposedly driven by hope out of Euroland.
- The reversal in various commodity issues doesn't help the bulls.
- Neither did the weak close in financials.
What I liked today:
- The action in gold is encouraging. While it didn't close on its highs, it managed a respectable move up. Gold moving up seems to be an important leading indicator for the market. I outlined my thoughts on using gold as a bottoming indicator for the market some days ago.
- The sentiment I am seeing across multiple platforms is downright bearish. This rally has already been deemed hopeless. We may as well be at the Friday lows already according to most.
- Tech and small-caps led the move up. That's what you want to see as we approach December.
Where does this leave me? With a lot of cash and a mid-sized position in TMV that I explained here.
It is to the point now where taking on significant long side exposure in this market has become so difficult that it is more than likely THE right move to make. I leveraged up the long side on October 4th without nearly the fear that I have of leveraging up here.
Bottomline: It is still a very mixed picture based on various indicators and inter-market correlations. However, sentiment and psychology is bleak enough here to warrant a rally of significant proportions above and beyond what we saw today. Whatever you do, tread carefully.
