Turn Off Your Brain We're Going Higher
The market blasted higher and some indices even gapped up in the morning
to start the session. Volume picked up a lot and financials led the
charge again.
The big banks reversed early losses this week and resumed leadership
roles. Stars of the session were JPMorgan (NYSE: JPM), Citi
(NYSE: C), Morgan Stanley (NYSE: MS) Bank of America (NYSE: BAC)
and Goldman Sachs (NYSE: GS), which were up an average
of more than 2%.
Over the past few months, as well as each day during this week, I
mentioned how bank stocks are our trend leaders. The direction the market
takes over the upcoming weeks will be determined largely by that sector.
And for now, banks only point to more highs.
However, I am still reluctant to invest with a high allocation of bullish
positions. The market has been relentlessly higher for nearly two full
months. Such a long rally without a decisive pause always ends in
mayhem.
The risk with trading such rallies is that they take a while to top, or
lose momentum. Every session is a minor up-day and that grind creates the
belief that the market is attractive to trade.
The slow bullish momentum makes you want to chase the move during every
lull in the action. And of course, behind the scenes the big boys are
gladly selling their stakes into the rally.
I don't want to be gloomy. I still expect new highs in the indices this
year. But in the near term the price activity is obnoxiously bullish. And
as we have seen (and successfully traded through) these slow bullish
grinds always end in tears. We saw it in May 2009, January 2010, January
2011, April 2011, June 2011, and we are about to see it happen
again.
I am not asking much from the bears
- just a 3% pullback. How hard would that be?
But the sellers are nowhere to be found. And aside from Wednesday
(Tuesday too, somewhat) volume has been ridiculously low since November.
The low volume indicates lack of conviction. And with very little market
participation during the rally, once the sellers do return they will
overwhelm the small amount of buyers and collapse prices.
As I look out more than a week, I still think the bulls remain in control
through February. I also think the bulls take out the 2011 highs. But I
then expect a new bear trend to unfold for the remainder of the spring
session.
You know it's a slow day for news when Facebook makes the headlines, not
once but four times. This morning on The Wall Street Journal
webpage, four of the six main page headlines were about the IPO that
Facebook filed.
I can't blame the writers. Facebook is a well-known name that most
readers probably use. It has also been one of the most hyped IPOs in
recent years. And it is also the highest valued IPO in some time - many
think it will open trade well above top rival Google (Nasdaq:
GOOG), which made its debut with a $1.9 million filling. My
guess is just about every media outlet will have coverage on the Facebook
news today. Of the many, I recommend
WSJ's article, Facebook Files for IPO.
Do you think Facebook is over pricing itself? I would like to hear your
thoughts on Facebook. Drop me a line any time at tradedesk@wyattresearch.com.
