Year End Rally?

We will start off today with another quote from Jesse Livermore. Why? Because there is much wisdom to learn from a trader who was able to build his trading account to a one time size of $130M during the depression era.

Another mistake I made was to permit myself to turn completely bearish or bullish on the whole market, because one stock in some particular group had plainly reversed its course from the general market trend. Jesse Livermore

This is an apt description of the current market. Banks have broken down. Retail has broken down. Transports have broken down. Should we then be bearish on the entire market?

We believe that would be a mistake at this point.

Over the past year the QQQQ has pulled back sharply to the current rising support line it is now trading at no less than three times. Each time the crowd turned extremely bearish and each time preceding this one the QQQQ has inexplicably marched on to make fresh new highs.

The QQQQ is now at a place where we believe bulls are likely to make a stand once again. This is typically a very bullish time of the year as funds buy up stocks to enhance their bottom line for the end of the year. As such, we believe it makes sense to bet against a broad market break down at this time.

Shorts in the weak areas should continue to do well, but don't make the mistake of getting bearish on the broad market too early.