Where is the Crowd Headed?

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  • on February 14th, 2011

Sometimes, no matter the effort, we just can’t create a clear plan.  That is me for this week.  I prepared even more than usual, probably because the first few clues were revealing little to me.  The overall flow is overwhelmingly bullish, with long candidates outnumbering shorts by a 5:1 margin in my work.  Bad news gets bought, and good news triggers rallies but not to the point of overdoing it.

My gut feels a little funny, as though a move of size is coming but I can’t sense which direction.  I lean towards an epic meltup, as major groups from industrials to semis to discretionary just keep powering ahead against a backdrop of widespread doubt.  Following that gut, the play would be to buy cheap vol in BOTH directions and wait for the big move to overcome the loss on the other side.  But that’s a lot of juice to pay…I’m generally fine with paying the ante to play, though I usually offset it by selling something against it.

Better to wait for setups on which I can confidently act then feel a need to make something happen.  As I discussed in this post,  I use the indices rather than stocks when we push away from the 70% above level for stocks vs. their 10 Day MA.  At 77%, that’s another data point for my “no man’s land” status.  My chicken way to play last week was to buy Feb FAS calls, with banks the only econ-sensitive group that’s yet to make real highs in this move…if a meltup comes they won’t be left behind.

We’ve had market shakeouts coincident with earnings season ending in each of the past 4 quarters, in February, May, August, & November.  That makes us “due” for the next one, but I don’t waste time predicting such occurences…if the tone changes, I’ll react as quickly as anyone so for now it’s more of the same.  The next idea on my list is shorting the gold miners, but I have a horrible track record with short-term gold trades so I’ll wait for a little more clarity.

Guess I’m calling a time out to gain a better perspective; sometimes the most subtle piece of evidence can be the catalyst for a killer playbook, and if I haven’t found it in 12 hours of studying I guess it’s best to “unfocus” first.  As Joey said in his post, we can gain so much perspective by stepping out of our data and “feeling” what others might do next.   A midday trip to the gym with my Kindle has helped me get there on other occasions when I’ve been stumped, so that’s my plan until a better one comes along.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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