Are bulls becoming too cocky for their own good

Free After-Hours Analysis: 

Thursday was another great session for the S&P 500, with the index adding 1.4% and extending this week’s bounce off of 4k support. But this was expected, as I wrote Wednesday evening:

[T]his continues to be a half-full market and it keeps focusing on the positives. If it wanted to go down, there are more than enough excuses for prices to fall…Something that refuses to go down will eventually go up. Expect Wednesday’s highs to get even higher over the next few days and weeks.

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Bears are quickly becoming an endangered species, but as nimble and agnostic traders, we have to get concerned when one side accumulates too much power because it often ends in a reversal in the other direction.

Now, to be clear, I’m not picking tops, but 700 points above the October lows and we have to be aware that a huge portion of the near-term upside has already been realized.

Momentum is far more likely to continue than it is to reverse, but it always comes to an end at some point. A lot of recent buying looks like bears getting squeezed out of their short positions. While that is great for some quick gains, big and sustainable moves need to be built on more than just bears scrambling for cover.

As much as I like this market right now, it is making me nervous and that is enough for me to shift to a defensive mindset. Stocks move in waves and every two steps forward are followed by a step back.

Without a doubt, stocks can continue climbing for another few days, but we take profits when everyone feels good. And right now things feel pretty darn good. We don’t need to sell everything, but it makes sense to lift our trailing stops and consider taking some partial profits.

Remember, we only make money when we sell our winners.

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