DON'T FIGHT THE FED

If the Fed wants this market to go higher, it could go higher. The warning I am going to give you is to be careful. You can try to trade this market higher, but don't forget some of the warning signs that I have been talking about for the last several weeks. I made money today, but I got out of most of my positions at the end of the day. I just can't see how this market is going higher. The market already anticipated all the news this week. In other words, it has already traded that information. The rally today felt a bit like a capitulation...or a final advance. I've said over and over that this feels a lot like the internet bubble of 2000. During that period, I heard many people say that it wasn't a bubble...that things were different this time. I'm hearing a lot of people say the same thing about this rally. Jim Cramer is even ridiculing us bears for even calling this a bubble. He did the same thing during the internet bubble. What you need to know is that you can make money on any bubble. The problem is that most traders get too greedy and begin to ignore their money and trade management plans. They also fail to recognize the top and end up giving back their gains (and then some) when the collapse begins. One thing that has concerned me about this rally is that the financials have not participated...until today. This tells me that either the financials are about to rally stronger than all the other stocks in order to catch up, or the market is about to drop down to where the financials are. I haven't seen any strong bearish signs yet for the market to drop, so I will currently assume that the financials will rally. I want you to look at the chart of the S&P 500 back in March and April and compare it to October and November. There are so many similarities that it is scary...a bit of a late Halloween. Look at the MACD back then and now. It looks almost exactly the same...right up to the current bearish divergence. The RSI is over 77. The Money Flow Index is in a major bearish divergence. Just about everyone is telling you to buy into this market...and worse, they are making you feel like it has to go up. The sentiment readings are off the chart bullish (98%) which usually means that we are at a top. I know that we can remain in these crazy conditions for weeks...or even months...so I'm not going to tell you to go short or stay out of this market. I just want to warn you to be careful and be smart. If the market is going to keep going up, the biggest upside is in the financials. Stay with the stronger companies like GS, MS, and AXP. Commodity stocks could continue higher as well...gold (GLD), silver (SLV), copper (FCX), and oil (XLE), but they really need a pull back first. This is just insane. I like VMW for a put option trade, but put a stop above the 50 day MA. QCOM looks like an exhaustion gap and could be a nice bearish trade...although I would probably use a Bear Put Spread. I will end this blog posting by saying that this smells like a suckers rally. I've been through this before...although never with a Fed that is committed to printing money until the end of time. Keep your positions small and don't over commit capital to this market. If you do, it could end badly for you.