Having removed the vast majority of my market hedges yesterday I confess to feeling a bit nervous, even though my positioning is not very aggressive. In the past I have almost always abandoned my long positions way too early as I start to feel very uneasy when the crowd turns bullish. However, the market rarely turns down as soon as the crowd turns bullish. It generally takes extreme bullishness before the market tops out. While I have reduced my longs as the market has risen I have been making a strong effort not to sell out as early as I usually do.
The item that makes me most nervous is that Rydex traders are now extremely bullish. In the past this has meant that the gains have been harder to come by at a minimum. I outlined yesterday why the NAAIM and II survey made me feel better about the market. The Investors Intelligence bears actually increased to nearly 30% today. That said, if we are able to rally to the top of the recent range I will consider buying some protective puts for peace of mind, given the cheapness of insurance.