THAT OLD FAMILIAR FEELING

I heard this morning that the bullish advisory levels have reached well over 60% again.

This is hardly a news bulletin. What also is not a news bulletin is the explanation given by someone from an advisory firm about why that does not matter this time. In other words, "it is different this time" the dreaded 5 WORDS.

You can see from the Nasdaq weekly chart below, that when we have reached these levels in the past generally there have been declines that have followed, or sideways action. The commentator mentioned some odd stat about how the percentage of households that own stocks was lower than at times in the past which is why there was plenty of room to run. Of course this could turn out to be true. However, the sentiment indexes are of professional advisers not individual stock traders. This is quite a bit different in my mind. The small investor does not drive the market, large institutions do. It is when the advisers are overly bullish that these levels mean more as a contra indicator.

Larry Williams has just come out with his annual forecast, and while I will not give all the details since it is a pay per view report, I will say that it shows a lot of bearish setups right now or in January. This ties into what I have been discussing in here, January after the first few days of rally, should setup some nice selling opportunities in quite a few markets. The first few days of the year should feature new equity flows into funds and support the market in general. After that, I think we are going to give way to some selling pressures probably for a month or two.

I mentioned the other day that I felt the metals were setup for a decline and that I was short GOLD. I also mentioned I had no expectation whatsoever in the trade, and it was simply a signal so I took it. After watching it test the 1372 area twice and bounce, I bailed out of it for a scratch. The entry pattern had been an inside bar with down close, which by and large is a crappy bar pattern to sell below. There are always exceptions in that some of these work, so I still took the trade. However, knowing the pattern was marginal, I kept a very short leash on the trade. I have a close friend who was also in the trade, who reversed to long and is making a nice gain on that move. I did not see a buy signal, so I did not do that but wish I had.

There is no magic to the two bounces, this was a complete judgement call. This market is still in such a big uptrend, I just looked for the first sign of trouble and deemed that to be it. Silver is soaring today and it did have a higher short term low so I guess that is where I should have been long but I am not.

I did try a long side trade in the bonds yesterday that I exited today for a small loss. When I saw it quickly reverse back down today I bailed out quickly. I do think in general this market is in a buy zone, but the pattern is not quite right. I forced an entry yesterday and when I do that it usually does not work out too well. I am also looking to short Heating Oil, but again the tape is awfully strong there so not sure where I am going to get into that one quite yet. I expect stocks to remain firm through the balance of this week. Any dips will be quickly bought just like we saw yesterday.