Marketwatch: The Market Continues To Lean Upwards, But Plan Ahead
Posted by admin on January 22, 2012
So we did break 1295/1300 on the S&P. So far, all indications are that the market continues to head toward the 1350 -1370 range. Everyone has different indicators, but the major ones I’m looking at include
- the break above 1300
- the VIX falling below 20
- bond falling, notably the TLT
- breakout in the DOW Transports, as well as the mid-caps (IWM, MDY)
- rally in financials and technology, major sectors supporting the market
- a slow move upward, which allows room for the rally to continue (a fast move up makes a fast move down more likely)
All this being said, my current hypothesis remains that we will get a rally in January that can fade sometime over the next few weeks. That’s because we really haven’t solved Europe and I expect that we will be reminded of that fact soon enough.
In the short term, the market can follow several possibilities paths. I pullback, especially now that the major earnings news is out, followed by a rise to 1350-1370; or perhaps a continued, slow, grinding melt-up. I fall back under 1295/1300 would cause me to question whether the market will make it to 1350-1370.
In terms of actual events, a resolution of the Greek negotiations with bondholders would be necessary for continued upward movement, and failure could put a dent in the market. You would think the Greeks and the bondholders would come to an agreement, and frankly, a positive expectation is already priced into the market. So be on the lookout for any disappointment to expectations.
Also, its time to think about when to sell and when to start taking defensive positions. Such re-positioning could include the following:
- buying VIX calls
- buying the TLT
- buying defensive names, including dividend paying stocks
- buying puts or the short ETFs
I highly doubt that the market can make it past 1370 on the S&P, so we’re not far from thinking of things going in the other direction.
Filed Under: General