Not Going Anywhere

While we could see some sideways trading, I don't believe this market is going anywhere on the upside anytime soon for the following reasons:
  • Bullish sentiment became too extreme and it will take some time to work off that condition.
  • There has been quite a bit of activity in the secondary market this week, with the $8 billion Blackrock offering being the largest. The GM IPO is scheduled for next week and will likely be about $13 billion. That is  a lot of supply for the bulls to digest.
  • The upside momentum has been broken and that should give the mo-mo traders pause, which seems to be everybody these days.
If the bulls come out of the gate today buying calls I will look to build up a short position again. The reasons I am being careful on the short side are as follows:
  • Seasonality- This is the time of the year when I have seen extended markets become more extended.
  • Artificially low rates are greasing the wheels and are leading companies to borrow to buy back stock and encouraging M&A activity. In a few years when companies have to roll this debt it might spell trouble for them but in the short run it is  a positive for the market.
  • Tops are often range bound affairs before the bottom falls out so we might see some more rally attempts.

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