PLAY IT LIKE THE BANKERS....DISTRIBUTION AND GIDDINESS

I can't stand it.  Like I said yesterday, with all of my favorite analysts coming to my view regarding the set up for the rest of the year, almost everything in me wants to find holes in that theory.  Sometimes it is better to be alone with a view rather than to feel like you are in a crowded trade!

Despite this new revelation that smarter guys than me have been convinced that I'm heading in the right direction, I'll still stick with my outlook, but I did take some time to look for compelling reasons why we'd have a pull back here, and I found several.  I'll share at least one with you below.  As a side note I saw a rumor that there has been a leak that the ECB has a firm date set for a Greek default and it is about one month away (around March 20th).  If I were a bankster, I'd probably need one more blow off top rally here to unload all my goodies on the masses to prepare for the rumored coming Eurozone breakup .  So, I will reiterate my sentiments from last night, if you have big profits take them, and if you are in new positions, make sure that you have stops on them.  You could potentially make a tub full of cash here in any last gasp surge, but make sure to realize profits when you end up making a bunch too quickly.

Check this out.
BULLISH % INDEX ON SPX

And this one too.
SPX

Admittedly this is a bit hard to see on the blog, but the top chart is essentially a quantification of bullishness in the market.  The second chart is the market.  What we see here is when the top chart is over or hits 85, it signals a period where investors are just too excited and everyone seems to have jumped into the boat.  The problem with these times is that no one is left to buy and propel things higher, so the rallies fall and sometimes fall quite far.  WE ARE NOT THERE YET, but a couple more days like today will seal the deal.  At the closing level of $84, the $BPSPX is near a signal, but be patient, and play this like the bankers.

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/ 

TOP OF THE RANGE

Ok, just a really quick post here. I have been sitting on pins and needles for the last couple of days trying not to get too convinced of anything as the market has given and taken away. As I am typing the market is down 18 pts in the S&P and to sound more scary- down 172 in the Dow.


What does this mean? Maybe nothing, but you must keep your eyes open and also be aware of the ranges we have discussed. In my last post I added the following comment in the trading wrap up section....


"The market is still within its trading range. We can look for us to sit within the 1110 to 1150 range on the S&P500 unless we have a catalyst to push us in one direction or the other. In the very short term we could have a pullback, but through the end of March I'm looking for a melt up higher. "


Well guess what, we got to the top of the 1150 range yesterday and we have a following smack down with the S&P trading now at 1132. Could we move to 1110? Yes. Should you be watching? Yes.


Other developments -


Keep your eyes on the following items that are of note.



TREASURIES - A LONG BOND BUYER EMERGES?

Someone suddenly has been buying long term treasuries in big quantities over the last two weeks. What does this mean - it means that institutions are starting to bet that interest rates won't rise. This would happen if the market sold off significantly and these buyers stand to gain tremendously if scared investors flood back to treasuries. Remember, everyone believes that interest rates will rise and the dollar will fall. If tons of buyers come back to treasuries, the dollar will also increase - this means trouble for our commodity laden portfolios.

What is our mantra? If everyone is leaning to one side, a careful investor might slip over to the other side or at least move to the middle to avoid the herd.




SENTIMENT -
Remember what we wrote in the January update - "Bullish sentiment was extremely high". I personally had 2 conversations with traders and they were so concerned with getting in that they never once mentioned that the market could fall and they could lose their money. These conversations are the ones that get me very worried.

GREECE

Greece is in some serious trouble. Their credit default swaps are pricing much higher (read as much greater risk of default). This will put pressure on the EU and the Euro. This also probably explains movements in treasuries and the dollar. - This picture is from Zerohedge - http://www.zerohedge.com/article/greece-cds-hits-fresh-record-funding-crisis-now-official

Defaults from EU countries will drive folks to safety and remind investors that there really is risk out there (something I think they have tried to forget).















PE RATIOS -
I've included a picture posted by Karl Eggerss at http://keggerss.wordpress.com/2010/01/19/are-stocks-getting-too-expensive/. This graphically describes that earnings had better improve dramatically and quickly to adjust the P/E ration back into some normal territory. As we all know, stocks have advanced in a huge rally on the expectation and understanding that the world was not coming to an end and that the world and the US consumer would again go back to the binge buying and credit enslavement.















I like Karl's approach here and this graphic is very telling.

Ok, so what do you do? Watch that 1120 support in the range. If you are in cash, this could be your buying opportunity. If this level falls, perhaps an exit might be in order. As you all know, these have been opportunities to add to positions. Remember July, September, and November? At some point the buy the dips won't work and the ranges will fall apart, until then, keep on your toes.