Thursday 10 January 2013

SPX At 5 Year High

Yesterday for the first time in seven days VIX rose by a huge 0.25 vol. and while it was still below 14, the blogosphere came alive with the story of imminent market top and collapse thereafter! And yet, today we have SPX at a five year high. Goes to show that we really do not understand (me included) how the market works. People and media make a fortune trying to find a logical reason and answer "why". And there is no clear answer. I think this exercise of finding logic in market movement is futile.

I do not know if we have a top or bottom but surely we need a good correction to get a better entry. Today SPX broke the range and cleared 1470 convincingly. Common sense says that it is better to sell here than buy but everyone is taking that trade and it is a crowded trade to say the least.

My ideal correction for entry would be in the range of 1450 which is about 20 points below from where we are now and that would convince everyone that the world is ending, only to deceive again. I do hope we will see some correction next week to shake out the weak hands but I also remember what happened last year. We never got a chance till March.

But our long positions in PM sectors are doing well with the break out today. While it was nice, the fireworks have not yet started and more are yet to come. Last night I sent out email to the subscribers stating that I expect Natural Gas to re-test $ 3.20 and stop/fail there. Fortunately, Nat. Gas read my email and behaved accordingly! (just kidding). I am hoping for another kind of fireworks here.

Coming back to equities, I do expect some kind of pull back shortly but that would normally be a buying opportunity. Couple of days back I wrote that SPX may test 1475 before any pull-back and most did not believe it. Today we closed at 1472 and the up momentum is still there. So another 3 points intra-day tomorrow is quite possible. By that logic we should see the correction next week.  Do I want to take a short trade for 20-25 points in S&P 500? I would not but then I am not a day trader and my time frames are different. There are folks out there who do monitor the daily ups and downs but all I can say that patience is very important. You get the chicken out of the egg by hatching it, not by smashing it.

That's all we have time for today. Hope you have been on the right side of the market and did not front run it.  Do share this post with your friends if you think they will like it. As always, thanks for stopping by.

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