I don't talk about my thoughts on short term market action very often but if you have read this blog enough you know I occasionally do. It is when the probabilities are high enough that I think there a decent chance that the market follows a certain path - so I actually have an opinion. This is one of those times. Most likely the market is up tomorrow and possibly violently. The huge rebalancing in pension fund world is occurring and I actually bought a very small position in SPY calls earlier this week. I don't make these type of speculative trades very often but the probabilities were such I thought it warranted a small position. So far it has worked out well. At 2:00 you can probably think about taking some profits. How and if you do is an artistic call. The move up tomorrow could be violent. Then comes next week. This week has been a rocket ship but I think next week could also be positive. Monday will probably be down. Then we probably get an election rally, regardless of who wins though McCain win is less certain since the market at this point is not expecting it, Tuesday or Wednesday. Once again I think probably violent and drift higher through the end of next week.
I am sure you are saying to yourself, but this has nothing to do with economic news flow etc. Exactly, huge bear market rallies never do. The market needs hope for counter trend rallies. A year ago September it was the whole thing was just a glitch, last January it was the Fed was being aggressive, in March it was the Fed was saving the world with Bear Stearns, in July it was commodities coming down and the Treasury is involved, now you have a knew administration. It gives people something to buy even if it is foolish. The election is the perfect catalyst and partly why I believe we have started rallying this week. This also will pass but I have said we will probably be around 1050 to 1100 by mid December. I believe this is a fools rally and will be lightening my exposure long before we get there because you never know how long bear market rallies last. I thing the range will be between 1050 and 1200 (very wide because of how dramatic the crash was) and it will be very choppy getting there.