Tuesday, November 18, 2014

Bears Throw in the Towel

After 8 days of sideways trading with SPY closing within a tight range between 203 and 204, price broke out to new highs closing at 205.55.

In many of the blogs I read, commenters are hugely bullish now and it seems that only a handful of Bears remain.

In reviewing the chart setup, price still remains within the broadening top formation so until it does I'm not sure that it's yet time to expect the market to go higher.  A break above the upper trend line should be followed up with a test of that trend line before going higher still.  While I did buy some calls last week considering the possibility that a continuation of this rally could unfold, I'm still not convinced.  I continue to hold December and January puts and will continue to add to my put portfolio, with a more distant expiration date, should I see overbought levels on my standard deviation charts.

But on the contrary, I've seen all of my indicators (on the daily basis) roll over.  So today's rally reminds me to some extent of the rally we saw just before the market dropped hard.

Much of what I have been reading has centered on the Central Banks world-wide, talking up stimulus measures.  But quite frankly, I'm starting to believe that this rally might be something different.  There could be some real cycles at play here that just happen to coincide with Central Bank activities.  I'm not quite sure but I'm starting to think that there is something more here at work and I will strive to find out.

I spent much of my flight time returning from Mexico today working on my data set, gearing it up to study the cycles.  One of the things that I want to investigate is the problems involved with capitalization-weighted indices.  Many cite that the Advance-Decline line is terrible.  Many more stocks have been below their 200 day moving averages so is the SP index really a good proxy for the market?  A decent move in just one or two of the top stocks in the SP could turn a big down day into one of these moderately up days that we've seen.

Lots of questions to answer.  I still am holding to my potential low day coming December 19.  Updates to come.

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