Post Market Comments

Unlike the market of months past, where stocks rallied and the sellers quickly materialized to push stocks lower, we are now seeing the exact opposite for the last several weeks as buyers emerge very quickly on dips to push stocks up. This suggest liquidity on the part of buyers remains robust. As we said in this morning’s S&P 500 note many investors we met on our recent west coast trip echoed sentiment such as "glad to be in cash" or "I don't feel like I am missing much not partaking in this rally."

While observed sentiment should never override objective technical indicator evidence there is some value when you open your ears and listen to what perceived novice investors are saying. For instance on the way down I heard many comments such as "this is the bottom" as we dropped lower and lower. Finally at the real lows the constant chorus of "This is the bottom choruses" completely dried up and we really were at the bottom !! So now to hear it is almost a foregone conclusion by many that this rally is not real and the McClellan Oscillator is so overbought that the market has to go done. Love that one every time I have ever said in my career the market "has to do something" like clockwork it never complies.

My point is although it is logical to look at a big rally and an overbought technical condition while running into resistance as a good stalling/selling point, it is not set in stone that it will work. Like any battle/sporting event you have to game plan and reassess strategies as events unfold. As I suggested in today's S&P 500 note there are several strategies that may work in case this market works higher though resistance (and again given that observed sentiment thinks this rally is done, I am leaning towards we may go a tad higher).

One strategy is to make strategic trims (reduce exposure), the second and my favorite is to remains fully invested with trailing stops set on lower cost basis positions (this give you the upside if the market continues higher but also takes you out and locks in profit if in fact we go lower on a re-test scenario) and the last scenario combines making strategic trims and holding a portion of the portfolio with stop losses then if we break above resistance moving back into names trimmed to remain invested. The idea is to pick a strategy your comfortable with, remove the emotion and then have a contingency plan should the market move unexpectedly in a direction you hadn't anticipated.
Kevin P. Lane


posted by Peter Greene