Cuidado

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.

2 comments:

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.