A minor hiccup?

After absence of break out setups for less than a week, I've got more than a dozens of them tonight, which makes me think this week's decline, only a minor hiccup in a longer term bullish trend.  It seems that Japanese market's 12% drop has washed out weak hands and now some of previous leaders are ready to burst out again. 

Shorts? Not yet.

Someone may want to ask if I loaded shorts in a down day like this.  My answer is no, because stocks do not go directly from an uptrend to a downtrend. there is usually a noisy range-bound period of distribution in between.  In a such consolidation period, both longs and shorts got whipsawed. I will not be surprised to see a strong bounce tomorrow, which will make today's short sellers not so professional:)

Have you held it?

The following is from my Wednesday's newsletter, "Some volatility is normal, I still think we have further upside. But more decline will change my bullish stance". Last week some traders I watched got scared and went short, which was understandable, but too early and plainly wrong. My model said to cut some losses, at most. And that is what I did. Sold some to raise capital and ready to jump back in. This week I think we rocket higher!

Resting

The market broke the resistance and now is resting. It has been a very strong and powerful rally!

Going back to old high?

The decline seems over, the lack of volume still concerns me.

Is the worst over?

Although we are oversold, the market is still lack of leaders. Any bounce should be sold into, more time is needed to build a sound bottom. Patience is the key, and cash is the king!

Time to be cautious

It has been a long time since I posted the good and bad analysis. Now I think it is the time again. First, the good part. The market is still in a confirmed uptrend and there are still some stocks breaking out. Now the bad part. The market leaders have stopped leading, namely BIDU, CMG, NFLX, CRM etc. The Chinese speculative small caps are on fire, namely SHZ, CHGS, which usually indicates an end of the move. The bullish sentiment is way too high that usually comes in near a top. In conclusion, the market is due for some sort of pullback and I am cautious near term.

Poll again

I participated the Bespoke's poll again and found interesting that not many investors bullish as I am. I think the Santa rally starts now.

Bullish sentiment

I did a survey at Bespoke.com and I am not surprised to see the bullish sentiment has grown to 61%, which probably means that the market needs a rest, especially few market participants expect the market would drop from here.

A true bull market

I know lots of traders are expecting some sort of pullbacks soon, including myself, but I am not sure we will get it and how deep it will decline. As time goes, the rally has gradually made this market a true bull market. Some characteristics I have witnessed but overlooked are: surprising good performance of the IPOs and investor bidding up the stocks even before their earnings, which shows no fear and optimism. So even in the coming days or weeks we will get a pullback, I guess it would be shallow and buyable.

Can't ignore it！

Any possibility we will test the July low or even lower? Yes, if we default, according to Bespoke.

VIX at the low

What is climbing wall of worry? I think right now we are climbing wall of worry. Today every financial websites or blogs mentioned VIX hitting the low. They are all worried about coming crash and they all think this rally is not sustainable. As a market observer, I don't know how long this rally can carry on, I just think it may have a little bit further to go, further than most market participants think.

Are investors really bullish?

This is a poll I copied from Bespoke.com, you can see the bear and the bull is about even, which surprised me.

Some bearish reasons

I borrowed two charts from Tim Knight's blog, one chart showing the interest rate along with S&P, the other shows Kol with SPY. Both say the rally may run its course, the picture won't be pretty. I am not a bear, but today's selloff in the momentum stocks make me think twice. If the highflyers are dead, how higher can the market go?

What a bull market!

The market shrugged off the bad economic number and closed at high. No matter how the bears translate or predict it, this is bullish. I know the sentiment is getting more bullish everyday, but it is normal since we are in an up trend and more and more people realize it. I still see some small investors try to pick the top, though less than the last week, that tells me the sentiment is not at extreme yet.

Weekly summery

I had been in sync with market until Friday, when the bulls came back with vengeance. Earlier this week I turned less bullish after less stocks came up to my scan and both the bank and the semiconductor indexes underperformed. I thought we were due for some sort of pullback and I bought a large short position of SMH to hedge my longs. Fortunately the short position was stopped out with a little loss Thursday, but my long positions are under invested at the start of today. I quickly added some exposures as the market opened, though at the end of day I am still not fully margined. Here are some thoughts for the next week.

Positives:

1. The market has been strong and the individual stocks have performed very well, just like a bull market.
2. More sectors are turning up and about to break up.
3. The semiconductor sector comes back ! Usually a good sign!

Neutrals:

1. The market and the stocks have come up quickly without any pause. Now some of them are near the heavy resistance.
2. The sentiment has moved to more bullish side, thought it may need more extreme bullish sentiment to reverse the trend.

Negatives:

1. The bank has not participated in this rally.

That is all the negative factors I can come up with. I didn't count the fundamental factors that takes much longer time to have effect.

Remember what I said majority of traders were short term bearish over the weekend? Today they got squeezed. Today it feels like the shorts threw their towels and covered their positions. With the Fed speaking tomorrow and market overbought, I think now we are due for some pullback.

Weekend homework

A week has passed since we broke out, now the question is how high we can go and how long the rally can carry on. Once again I have no idea, the reasons as follows:

Positives:

1. Many stocks broke out and have held up well.

2. The market has been very strong and has not given much opportunities for people to get on board. Usually a sign of the start of a lasting bull trend.

3. Not many people believe in this breakout. I never saw so many bloggers or traders have one and only one conclusion: breakout is short-lived and we are going to pull back very soon. Trust me, go to any other trading sites, the conclusion is same and I find it very interesting, since the market always fools the most people.

4. The weekly chart of NDX has formed a solid bottom and broke out.

Negatives:

1. The bank and the semiconductor index still lag this rally.

2. China stock market has stalled.

In conclusion, I thought we would have little upside room last weekend, just as 99% of traders do, but right now I see a chance that we will continue to climb because the market always surprises most of us.

Break out!

Today the market break out! Just did not expect so soon. Now we have to hold the gain, otherwise it would be a bull trap that is very unfriendly. The bank sector also breaks out, bullish so far.

We are still resting

Now a week has passed, the market is still rest just under the resistance. Can we break out? I still don't know. But here are some positives and negatives for you to think over, you may be a better judge.

First the positives, as usual.

1. More stocks came around and formed a breakout pattern, either cup and handle or bull flag.

2. The already broke out stocks have kept the gain very well, namely as AKAM, FFIV, CMG, VMW, NFLX etc.

3. The recent economic numbers are much better than expectations.

4. China's stock market bounced back after a brief decline.

The negatives:

1. The sentiment has flipped to bullish too fast. The AAII bullish number has grown to 44%.

2. High CPCI number indicates big boys are betting upside is limited. I borrowed the chart from Cobra and attached down below.

Now the neutral factors:

1. The bank sector has been lagging, but now came around a bit. The semiconductor sector has just disappeared entirely in this recently, but the good news is Taiwan is about to break up, which is the manufacturing base of most of semiconductor companies.

My best guess is maybe we rally a little further, but upside is limited since the sentiment and the lack of leadership from the bank and the technology. What do you think?