Thursday, October 26, 2006
We find it quite amazing that this bullish move has yet to reach the point of recognition where the bears finally capitulate and turn into longs. Shorts have been hitting this rally since the market bottomed back in July. We admit, we were skeptical and made our own mistakes trying to call a top up through September, to which we plead mea culpa. After the market showed that dip buyers continued to be as aggressive as we have seen in recent memory and once the small caps started to participate, we threw in our top calling towel and went with the flow. Thus far, it has been quite profitable to do so. Top calling persists in this market and shorts continue to attack the rallies. Yesterday QQQQ bears bought twice as many puts as they did calls. They may get lucky, but what we continue to find in this market are very nice buy set ups and a shear lack of distribution; just the opposite in fact, for every dip has found aggressive buying. It doesn't pay to throw caution to the wind here. The market remains technically overbought. At the same time, just because it is technically overbought does not mean that it cannot continue to climb higher. Strong market moves always go much further than most think probable or possible. We continue to warn against exuberance and at the same time warn about trying to call the top. Take the bullish set ups as they come and use stops to take you out when the market finally does turn. Gold is once again heating up, so pay attention to this sector.