The Missing Ingredient

There are two things I like to see when entering a short position on the broader market. The first is that the market is maximum overbought or nearing it. After today, the market will be maximum overbought. The second thing I like to see is that sentiment is lopsided towards the bullish camp. That is not yet evident as it seems that investors are still reluctant to embrace the rally. I am hoping that we will see more exuberance today. If so, I will move to a net short position in time for Turnaround Tuesday.

The caveats are that option expiration could drag this rally out to the end of the week. And the period heading into Thanksgiving is seasonally strong. As such any short exposure I take on will be relatively small.

1 comment:

PJ said...

Well, you've done well cutting down your shorts keeping longs through this period ... wish I had done so ... I'd be up instead of flat over the last 1.5 months. Thursday to today has wiped out my recent gains.

I still think government manipulation has been the key to this market. When the government buys in bulk, driving up prices quickly, everyone steps aside and volume dries up. When the government withdraws, traders come back, profit-taking dominates, and we drift down.

The questions are how high do we go this round, and when will this peculiar equilibrium change.