Congress was able to pass a Fiscal Cliff deal solving a crisis they themselves created. Regardless, the market blasted higher closing strong with volume higher than Monday’s session. Mid-day stocks did appear to falter a bit, but the close is where buyers began to scoop up shares in a hurry. Volume poured into the market and while it could simply be money flowing due to the first of the month it was strong nonetheless. The market started this year very strong and while we do not know the future for now we are in an uptrend.
This market has a similar look and feel to it in the month of June and July. The market this past summer was quite volatile in nature and it appears to be very similar. There are differences including sentiment and market positioning, but for now there are similarities. What really caused an issue for traders in June and July was chasing stocks breaking out. If you aren’t in there as the breakout occurs chasing well beyond the proper buy point you are going to be subject to whipsaws. Stay disciplined and do not chase stocks well beyond their proper buy points. If this market is anything like June and July you will have plenty of opportunities to slide back into positions.
On the sentiment front the number of AAII bullish respondents dropped to 38% down 5.7 points. Clearly respondents were affected by the fiscal cliff negotiations, but it does bode well for the market here at least in the very short-term. Sentiment is never perfect and it will be interesting to see on Friday where the Commitment of Traders for ES_F comes out. For weeks it has been bullish and it will be interesting with the past two trading sessions where traders have landed.
The VIX has been crushed the past two trading sessions with institutions selling volatility to get long stocks. Clearly the past two sessions has changed the landscape of the market, but fear of any decline was thrown out the window with the kitchen sink today.
All signs point to this market pushing higher with a day or two pullbacks. No one can predict how high or how long this market rally will last. For now, with the information presented to us this market is going to move higher. Until we get a change in price direction we’ll stay long.
Know your exits
