The View From The Top

At market tops the bullish arguments always sound best. There are always great reasons why the market should continue higher. But once everybody is convinced by the bullish arguments there is little money left to propel the market higher. Looking at a chart of the 10 day moving average of the CBOE put/call ratio it is quite clear that the crowd has been convinced that it's up, up and away. This is about as bullish as they get.

  

Adding to the sentiment extreme, the market will be overbought at the end of the day today. I have written at length about how I loathe going short at the end of the year and thus far it has been a very good decision not to go net short. However, one out of four times the market does go down at the end of the year. Given all the extremes we are seeing I believe we are in year four. I plan to use the volatility surrounding the Fed meeting to establish a net short position.