The Dow Jones closed higher for the 10th consecutive session, setting a new record in the process as it closed above 14,500 for the first time ever. The S&P500 also closed a mere 2 points away from its record closing high of 1,565. The bulls are getting just what they needed after 2 day of consolidation: a return of upside momentum. There’s one problem I have though, leaders like GOOG & GS remain roughly 3% from their most recent 52 week highs, and GS sank 1.8% after hours.
I’m starting to get a sense of my overall feelings towards this market. I’ve been expecting new all time highs for SPX, but now that they’re almost here it’s time I consider what to expect next. Due to the recent lagging action in important names to me like GOOG & GS I suspect the market is in the late stages of its move. There are a few factors that I believe support my argument:
- Sentiment — This is not a timing indicator, sentiment can remain skewed bearish or bullish for a long time before the market reflects a contrarian perspective
- Psychology — We’re at/near all time all highs, to some extent smart money has to be selling on the way up here
- Time of year — 3 years in a row, SPX has put in a 6 month between the months of April-May
Sentiment has been overly bullish for the last few months, and many pundits have cited this as a reason to sell. What those pundits forgot to mention was that sentiment can remain skewed one way or the other for a long time before it actually matters. However, now that sentiment has been extremely bullish for so long, my sense is it might become more of a ‘reason’ to sell stocks in the near future.
You’ve got some traders who have caught this move, others who are shorting this move, some who have been on the sidelines, and others who are waiting for all time highs before buying or selling. I believe the smart thing to do as an institution is to be selling on the way up to and above all time highs. I am thinking of this as what would I be doing if I was managing hundreds of millions of dollars right now? My answer isn’t unloading all my stocks, but it is that I would be taking profits on at least some of my holdings.
Lastly, you have to take into account the time of year and what has happened around this same the last few years, and that’s a 6 month and in some a cases a yearly top. Now if you look at the last 3 years you’ll see the top didn’t come until April or May, and being as it is still just March you might wonder why I’m raising this issue now? The reason has to do with my last paragraph: selling on the way up.
You don’t want to be caught chasing the market lower, especially in a market like this where lower prices have meant buying opportunities. So while I still believe all time highs for SPX are coming any day now, I do think the levels you’re seeing here and throughout this month of March will prove to be a good profit zone come June-August.
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