Up 5% in nine trading days, the S&P500 index sits over its upper Bollinger band, typically a risky place to add shares and generally a good set-up for a sharp pull-back. The relative strength index also sits in overbought territory.
Tomorrow is turn-around-Tuesday, the first Tuesday following a Friday triple-witching day. I wouldn’t be surprised to see the beginning of a correction tomorrow or soon thereafter as the market seems to have forgotten what down feels like. There is no need to anticipate a down move (a mistake in a strong uptrend), but I’m ready with some hedges (TVIX, TZA) if the market continues with its rally but then suddenly reverses and makes a new daily low within the next few trading sessions. It feels like there is an avalanche of new money hitting the market as big money rotates out of treasuries and into stocks. I’m keenly aware that this is a central bank-induced liquidity rally in the stock market, with immense inflationary implications. The market may get really silly on the upside this year before inflation fears put an end to the optimism.
Trading tip: trade individual stocks on the merit of their own stock charts and ignore the overall market direction.