Since coming back from New Year’s vacation, the US stock market has become a gong show.
The mad rush into stocks has more resemblance to a cafeteria food fight than a regular functioning market.
Strategists are falling all over themselves with exuberance. Ralph Acampora, the “Godfather of technical analysis” is so bullish he needs to “sit down and calm down.”
After a few decades of staring at markets, I can tell you one thing for certain - when the strategists are biting the pillow to stop themselves from screaming in joy, it’s time to think about going the other way.
I thought BamaTrader summed up the current mood perfectly with this tweet:
Yup, that pretty well sums up the straight shot upwards of the past couple of weeks.
There can be no denying that we have hit the “just get me in stage” of this rally. Have a look at this chart of the S&P 500 with the 2 standard deviation bollinger bands.
See how it has pushed up through the purple upper band, and then stayed there? That shit ain’t normal. That’s sheer panic - just the opposite way.
The other day, fellow Canadian newsletter writer Cam Hui, The Humble Student of the Markets writer, reminded us of Bob Farrell’s fourth rule.
“Exponentially rapidly rising or falling markets usually go farther than you think, but they do not correct by going sideways” - Bob Farrell
Will today be the top? Who knows? But make no mistake - when the short term top finally comes, it will not correct by going sideways for a couple of weeks. Don’t ever forget Bob’s rule. And make no mistake, this is an exponentially rising market.
Remember the bitcoin optimism and certainty when it rose to $19,000 a couple of weeks ago? The price action at that time felt like it could never go down. Much like today’s certainty regarding equity prices.
Don’t look now, but bitcoin it ticking some 40% lower. I am not saying that stocks are about to crash like bitcoin, but if you have some equity blue tickets to execute, I suspect putting them away in your drawer and waiting for some better prices might be the best course of action.
Either that or you can give them to Ralph - he needs something to do to calm him down.