BULLS ARE STILL GOING STRONG

With today's move in the Dow, all three major averages have now broken above their November highs. As stocks break out to new highs, it confirms the bullish trend. This doesn't mean that stocks have to go higher or will go higher...it just means that they have a higher probability of going higher. This means that we need to have more of a bullish bias on our trades until we start to see signs of the bullish trend breaking down. Another reason to have this bullish bias is due to the current policies of the Fed. They are pumping money into the economy (and the stock market) in an effort to jump start a sluggish economy. They are attempting to inflate our way out of the recent recession. Although this policy is experimental, it does appear to have propped up the stock market over the last few months. This doesn't mean that the market can't have sell offs, it just means that the sell offs should just be pullbacks within the larger uptrend. I still expect a decent pullback in the early part of January, but the market could rally through the end of the year. One thing that could trigger a major sell off sooner would be final decision on the extension of the Bush tax cuts. If these tax cuts aren't extended, there will be many wealthy investors that will sell their current positions before the end of the year in order to get the lower tax rate on those capital gains. This would create a short term opportunity to really profit from some put option trades. I personally think they will be extended, but congress will put on a show for the next few days before finally passing it at the very last moment. How can Congress go into the holiday break without creating a lot of drama. They find a way to do it every year. I don't do a lot of trading during the last two weeks of the year, so I might not have very many blog postings until January. If I see a pattern that I like...or if anything major happens over these next 17 days, I will post it on the blog.