1000

I told you last Thursday that if we broke above the 990 area on the S&P 500 there was a strong probability we would make a run at 1000. We broke above 990 on Friday and we gapped up today and topped out at 1003. Do I think the market is overbought?...YES. Do I think you should short the market right now?...NO. Although it is difficult for me to buy into new positions here, I can't ignore what the market is telling me. Remember the characteristics of an uptrend? We are breaking above resistance levels and the support levels are holding. When the market does start to sell off, the buyers come back with a vengeance and push it higher. The path of least resistance right now is higher. This is when it gets hard to trust the trend. The danger is that you will finally buy into the trend just as it reverses. How do I decide what to do? Well lets look at the two main possibilities. First, I buy in right here and we drop down in a sharp pull back. Second, I short the market right here (or buy puts) and we move much higher. Since I don't know the future, I will look for the path of least resistance. I know I will lose money when the trend reverses, but there is no way to know when the trend will reverse. The choice is to keep losing money shorting the market and trying to pick the top, or go with the trend and lose money only once when the trend finally does reverse. This is definitely a dangerous area. What I do (and you should know this by now) is to go to a larger-than-normal cash position. I will continue to buy into the trend, but with only a small amount of my total capital. I want the cash so that I can take advantage of what will happen next. If we pull back and it looks like the uptrend will continue, I have cash available to buy in at the lower prices. If the trend does reverse and go down, I have the cash to take advantage of the move down...or just hang on to the money I have made. Earnings season is winding down and August is traditionally a slower month...but this market isn't following traditions. For trading opportunities, stick to the leaders until this trend reverses. AAPL, IBM, GS, JPM, MMM, GOOG, BIDU, and FCX. For those dying to short the market, at least let it show you some weakness. One of those areas where the probabilities could start to shift would be the 982 area on the S&P 500. If we break below this support area, we could be dropping to at least the 950 area. I see some possible resistance at 1007 (11/4/08 high). We'll see what happens tomorrow.