All Indices, globally, have come a long way since my hesitantly bullish post in December. Its fun to re-read what I had written with so much hesitation. The markets have just achieved so much in so little time that I had no clue about timing. Having said that and having seeing such a rapid run up, I think its now prudent to lock in some gains and move to cash position. Usually shorting is not a good idea, however, if you are patient and disciplined enough, I think shorting some very-stretched and liquid equities may not be a bad idea. For example, XHB XLV NKE WMT HD INTC MSFT CAT GILD AMGN JCP are safer shorts at this stage. Moreover, I would buy longer term put spread on QQQ, which looks stretched and will correct to yield profits on the short side.
This coming correction may be short lived and that's one thing that needs to be watched very closely. The markets could correct for a week and rise sharply again to make new highs. I think currently the underlying feeling still is that the markets want to go higher as all signs suggest pricing to go north - e.g., LEI indicators, PMI, Employment numbers, good house in bad neighborhood thesis etc. Hence, once the correction starts, don't short and bet the farm. :). There may be a bigger correction in Summer'12.
Watch for $USD to bounce, which will correct precious metals again. TLT will get bid up on any correction but will eventually roll over once the correction ends abruptly.
Update 2/14: I was certainly a few days early in making my call above. Its midnight today and Asia is rallying hard (indices are up 2%). /ES Futures are rallying here as a result. However, there is tremendous divergence in $VIX, NAMO, NYMO, NYHL, NYHGH and overall the market is just too overbought. It can continue to be overbought but eventually a correction should follow suit. It is key to keep a very close eye on the signs of topping out and I think we are close. However, timing it is always difficult. Hence, it is prudent to stay on sidelines and not go all in and short market as such crazy moves based on hopes and wishes, WILL burn your account faster than anything else. Patience is a virtue in investing so cultivate it as much as you can before you can make money in market :). If the market gaps up and rises intraday and eventually closes in the red tomorrow, maybe we will get our intermediate top tomorrow. Lets keep a close eye.
Update 2/14: I was certainly a few days early in making my call above. Its midnight today and Asia is rallying hard (indices are up 2%). /ES Futures are rallying here as a result. However, there is tremendous divergence in $VIX, NAMO, NYMO, NYHL, NYHGH and overall the market is just too overbought. It can continue to be overbought but eventually a correction should follow suit. It is key to keep a very close eye on the signs of topping out and I think we are close. However, timing it is always difficult. Hence, it is prudent to stay on sidelines and not go all in and short market as such crazy moves based on hopes and wishes, WILL burn your account faster than anything else. Patience is a virtue in investing so cultivate it as much as you can before you can make money in market :). If the market gaps up and rises intraday and eventually closes in the red tomorrow, maybe we will get our intermediate top tomorrow. Lets keep a close eye.
