Looking at a longer term chart of Dow Jones Futures there are two trend-lines to consider.
The upper projects out to Dow 17,000 by the first week of January. Wow. That doesn’t seem possible or realistic, but that’s where the Trend line projects out towards.
Down below in the lower T-Line support doesn’t really come in until 15,500 to 15000. Its really any one’s guess as to when the correction comes or how violent it will be.
I certainly am not professing advanced knowledge of any type.
However, just listening to the tone of comment on the web, in the financial press, and from the chatter class on cable, I think we still have a ways to run.
The fact that anyone at CNBC would even consider asking’ “is this another bubble?” makes it highly unlikely that there is a correction coming of any sustainable percentage.
The highs will be in when they trot out someone professing Dow 25K or Dow 30 K. I have yet to see that however.
This market continues to rally on the idea that the fed will never raise rates. That is basically the accepted philosophy currently.
Every time we pierce a new high, professionals load up on puts and sell calls and also sell the futures, only to be stopped out with losses.
As long as we keep having people take big shots at selling the highs, we won’t be there yet.
Its a perverse function of markets. They exist to give the most amount of pain to the most amount of people, very often these can extend rallies far past “what seems logical or sane”.
So how do you play this? I’d maintain long cash positions and use put options strategies to protect against a 10% correction.
For now, until I see a major shift in mass psychology, I’d be comfortable being long here.
However, I’d have some tight sell stops protecting those long profits.
One day in the next 3 to 9 month, we’re going to go to sleep with the Dow looking rosy and wake up with a nasty sell off in our faces. I have no idea what will set that off. I can guarantee though, that there will be finger pointing and “I told you so’s from the bears.”. It just feels to me like this market is bound and determined to go get those new highs.
Remember, mutual fund mangers get paid to own stock.
Most people are going to feel better about putting money back into the market now that we are at new highs and it “looks safe again”. However, there are still enough people out there still soured on the market after 2008, 2009. When those people get back in, that will be the top.
It just doesn’t feel like they have thrown in the towel on their bearishness yet.
Remember, this is just my opinion. I may wake up tomorrow or next week and completely flip, but for now, I don’t see the profit in fighting this up trend.
My best suggestion is to stay long, but keep moving your sell stops up underneath profits.
Ever quarter, you might want to purchase a chunk of out of the money puts as insurance. Hope you lose the premium. If we get a nasty sell off, those puts will pay off well. Its only a matter of time, but no one knows when that correction will get under way.
For now, the sky still looks blue.
Like always, the time to build the arc is before the rain starts.
CER