I wrote last night that the sideways action of the past week and a half has helped to work off the overbought reading. Unfortunately, sentiment has become more exuberant during this period and I believe that the market will have a tough time making much progress on the upside as a result. Rydex traders are now positioned about as aggressively as they have ever been. If they are at all representative of how traders are positioned, it will be difficult to find a marginal buyer.

I added to my hedges in the pre-market bringing me back to a modest net long position. When sentiment is this frothy I am happy to miss out on the upside and ensure my hard earned gains are protected.


Eric Hilf said...

The market remains very dangerous IMO. However, the slightly greater danger still appears to be on the short side -- you don't want to get caught too short. 

After the big gap up on Monday -- which I sold -- the market started to look a little tired on Tuesday. Which is why the end-of-day strength surprised me. 

Now I get the feeling the market is willing to continue climbing the 'wall of worry'.

I am appropriately cautiously long. But that's pretty much day-to-day.

Tsachy Mishal said...

What "wall of worry"?. I don't see much worry out there.