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Monday, March 15, 2010

Market hits new highs

I am skipping my weekly post on stock charts, and would like to point out the market hit new highs on Friday. Also this weekend is stock market expirations, so games will be afoot once again.

I got to tell ya, I am starting to think the market will continue from SPX 1152 through 1250 before terminating before or near 1,300. In the extreme short term here is some food for thought.
One of my pay services, "Elliot Wave International" has an interesting statistic I'll reprint here. For more context subscribe to their service.

The stock market is stretched and, we think, exhausted. The NASDAQ 100 has now closed up for a Fibonacci 13 consecutive days, equaling the previous streak of 13 straight up closes from December 19, 1991 to January 9, 1992. Our CQG data starts in 1983 and the only longer streak during this entire 27-year period was an incredible 19 straight up-close streak from April 27 to May 24, 1990. So streaks of this magnitude are rare.

Back in March of 2009, my friend John Chinnock stated that the market must revert to the mean, and thats when I posted buying "lottery ticket" stocks. We both bought, but not nearly as much as we should and both of us didn't hold as long as we should.

In any event, the quote above should give everyone pause. This streak is RARE, and granted it could become the longest streak and hit 20 up days. It really could. But its not going to hit 30 up days. And the pullback should be 10% or more, as we revert back to the mean.

Elliot wave goes on to say about pullbacks from such over-stretches:
But the 1991-1992 up streak did end four market days before the high of January 15, 1992. The NASDAQ 100 doubled topped a month later on February 12, and then declined 19% to a closing low four months thereafter, on June 16, 1992. And after the 1990 streak, stocks suffered a horrendous decline from July 1990 to October 1990, with the NASDAQ Composite losing over 30% of its value. So a reasonable conclusion is that the NASDAQ, and by inference the broader market, is "stretched" and due for some degree of a setback.

Notice they did not quote the declines happened immediately afterwords. Their point is, such upswings is not normal, and reversion is brutal when hyper extension takes place.

So I am not adding a single short, nor buying gold, and may continue to go to cash. But this is not a Bull market, its a Bear market rally, one for the record books. And stepping infront of it is not the wisest thing to do, nor play chicken and join it hoping to get off before it snaps. Cash is King.

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