PM: Who believes in this rally?

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks set another all-time closing high on slightly elevated volume.  This was the fourth consecutive record closing high as the good times keep rolling.   At 1632 the market is getting a tad extended from recent resistance, now support at 1600, and the 50dma back near 1560.

MARKET SENTIMENT
So far its been a “Buy in May” kind of month as we set record high after record high.  There is plenty of time for holders to lock-in recent gains and “go away”, but for the time being the market is chasing this breakout.

It is easy to come up with reasons this market should go down and hard to justify a 100-point rebound off of the 50dma.  But that is what makes this move work.  When everyone expects one thing, it is already priced in and the only thing left is doing the opposite.  Bears will debate how overly bullish we are at these levels, but the price action clearly demonstrates how overly bearish the market really is.  I often hear bears talk about widespread bullishness, but I rarely hear from these bulls firsthand.

TRADING OPPORTUNITIES
Expected Outcome:
Keep doing what is working.  If someone is out of the market, it is a little late to chase the breakout and wait for the inevitable step-back.   Even if we head higher over the next couple days, it is highly unlikely this is the last time we will see 1630 in coming weeks.

Alternate Outcome:
The market rose nearly 300-points six months and it’s been a phenomenal ride for anyone willing buy the post-election pessimism and Fiscal Cliff hype.  But all good things must come to an end and so will this rally.  I don’t know if it will be this week, this month, or this quarter, but at some point we will finally get the correction everyone is calling for.  The longer we put it off, the uglier it will be.  Stick with the rally, but keep a lookout for waning demand, leading to lower-highs and lower-lows.

Trading Plan:
Stick with this rally, but look for opportunities to lock in profits.  Either sell proactively on the way up, or follow the market with a trailing-stop.  We’re in this to make money and the only way to do that is selling winners.  It is premature to short this market for anything other than a quick day or swing trade and for the time being, every dip remains buyable.

Plan your trade; trade your plan