SOMETHING BIG IS GOING TO HAPPEN...SOON!

I've been talking for weeks now about a top forming in the market. The thing about picking tops or picking bottoms is that you can never really perfectly predict when they will occur. We can recognize the symptoms and use that information to move to safety...or at least lighten up on our risk exposure. We currently have very low levels on the VIX, divergences in the major indicators, and more and more people telling us on T.V. and on financial websites that the market looks like it will continue to move upward. I remember experiencing such overly bullish sentiment during the internet bubble of 2000. In late 1999, the market was moving up at an unusually fast past. The Nasdaq basted through 3000, 4000, then 5000 in 4 months!!! Yes that's 4 months, not 4 years. 4 years would have still been incredible. We knew it couldn't keep up that pace, but there was no way to know exactly when the bubble would burst...only that it was going to burst. The market was overbought for months before it finally dropped dramatically. Many of the financial "experts" were saying that we could sustain that growth because this was a new age...the age of computers and the internet. It was a new economy that wouldn't operate according to "old" rules. That internet companies could trade at $300 a share and have no earnings because they would eventually have huge earnings. People who knew nothing about trading were dumping millions of dollars into call options. Why not? The market was going straight up and everyone was telling them that it would continue to go straight up. They were the "experts". Why would anyone doubt them? We are hearing similar things today. Most of this year long rally has been due to the government dumping billions of dollars into bailouts and stimulus. I've heard the "experts" say that companies are strong and that everything is almost back to normal. Many companies have had record earnings and outstanding growth. I can't help but ask the question "Is this real?". Borrowing a million dollars doesn't make me a millionaire. Many of you might be using the endless bullish rhetoric as a reason to confidently buy stocks and buy call options. I've learned over the years that when I feel most confident to buy is the time that I need to sell....and visa versa. I picked the bottom in 2009 within about two days. The timing was lucky, but the symptoms were unmistakable. It was only going to be a matter of time before the markets would rally. It was the complete opposite of 2010. Maybe I'll get lucky again and the top will be reached within two days of this blog posting. Maybe it will be two months. All I know is that it will likely happen...and maybe soon. The put/call ratio is currently the lowest in ten years. That means that traders are buying record amounts of calls over puts. Ten years ago....wasn't that 2000? Wasn't that the internet bubble? Just a thought.

I've posted some bullish trades over the last week because I liked the patterns. I don't know if this "melt up" will continue for a while, so I might as well trade the current trend. I don't recommend trading with large amounts of your trading capital. Save it. You might just have a big opportunity to make some easy money on the way down. If you buy calls, use stops or limit the amount in the trade. Buy one or two contracts instead of ten. I thought we had reached a top in January of this year. I realize now in hindsight that the sentiment was not yet bullish enough for a big move down. I think is is now...or at least it is very close to getting big enough. Another 100 point move up, like we saw today, might just push that sentiment up far enough to snap. The market can sometimes be like a rubber band. Just when you think it has stretched far enough, it stretches a little further. However, when it finally reaches the peak of its stretch, it will snap back in the opposite direction with an even greater force. We'll see what happens. By the way, AMD and GOOG report earnings tomorrow and BAC and GE report on Friday.