Although I had planned to get “back into things” over the weekend, I ended up extending my vacation until the last minute of the last day. As I was pretty much checked out mentally from the markets over the last few weeks, just checking in occasionally, I am now ready to “re-engage” the markets with my full attention and plan to update the trade ideas as well as post some new commentary and charts this week.
It seems that the markets caught the majority of traders and investors, myself included, off-guard over the holidays with the largest two-day point rally ever for the last & first day of the year. For those who were bullish and positioned as such to take advantage, congratulations. For those like myself, who were positioned short and still are, I plan to update as many of the active short trades as possible over the next few days as well as communicate my thoughts on where we might go from here.
The bottom line is that the longer-term charts and several other near-term metrics such as sentiment, overbought readings, etc.. continue to remain bearish while the current near-term and intermediate-term price trend clearly remains bullish. Although I can not give investment advice, I can & will share my general thoughts on positioning here: For those current long who still believe there is more upside to come, at least consider raising or trailing your stops to protect profits. For those in cash looking to get long, I can only say that the risk to reward ratio is very poor right now. Although the near-term trend and price action is bullish, the majority of sectors and broad indices are at or approaching very significant resistance levels on the longer-term charts and overbought to boot.
For those short or looking to get short, the markets are at or very near key resistance levels and shorting resistance with stops above is more often than not a successful strategy (just like buying support with stops below). I continue to be very liberal with my stops and believe that the R/R of being short here with stops not too far above (roughly 3-5% on the major indexes) is very favorable. Regardless of the recent plunge in the $VIX during the 12/31 & 1/2 rallies, I still think that the $VIX calls are very attractively valued based for those looking for a hedge against long positions or as a speculative short trade. Finally, I do plan to add any attractive long trade setups that I come across when looking over the charts this week. For those of you who have followed this site for most of 2012 know, I have typically kept a nice balance of long and short trade ideas on the site, regardless of my own positioning or market bias. I hope you enjoyed the holiday season and once again I’d like to wish everyone a happy & prosperous New Year. More charts & commentary to follow shortly.