For the past three years December has proven to mark a significant market top. So far this December is turning out to follow the pattern. Yesterday blue chip stocks like IBM and GE rallied while the majority of the market was under heavy selling pressure. This is typical topping action.
Money managers, who need to have their money working at the end of the year are parking it in low beta, heavily traded blue chip positions while they are in a mad scramble to unravel their riskier small and mid cap positions.
Selling pressure was felt across the board and should be respected. Nevertheless, bears who sold short yesterday are likely to get burned as market players use the low volume holiday environment to run the stops. That is, new short positions will have stops placed at overhead resistance levels creating a big temptation for hedge funds to run prices back up and collect the stops before they enter their own short positions.
We expect that the market will see a turnaround Tuesday today where yesterday's losses move back into positive territory. This may be a chance to exit long positions and put on shorts of our own. We will need to wait and see how furious the buyers are as they play their hand.
Right now it is absolutely essential to stay patient and not open any new positions. A weak bounce today would be a good opportunity to open some shorts, but as of the time of this writing there are no advantages afforded anyone but the scalpers.
Note to Gold and Bronze members: We plan to issue an update on open long term positions either today or tomorrow. We are waiting for more data before adding to current commentary.
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