If the Market Can’t Rally On Good News In the Next 24 Hours – Get Ready For A Round of Profit Taking

November 20, 2013

The market has been choppy this week. That is pretty typical of the first week in a five week expiration cycle. Stocks reversed off of a new relative high for the second time in the last couple of weeks and that is a sign of exhaustion.

Ben Benanke’s speech last night was fairly benign. He reiterated that he is in favor of the zero interest rate policy (ZIRP). He did not spend a lot of time on current economic conditions and the take away is that tapering will happen towards the end of Q1. That coincides with my timeline. I believe Janet Yellen will take office and the debt ceiling will be extended before bond purchases are reduced.

The FOMC minutes will be released this afternoon. When the meeting took place a few weeks ago, economic data was sparse. The government shutdown delayed many of the releases. Consequently, the minutes should be market friendly.

Retail sales increased .2% (ex-autos) and that was slightly better than expected. Flash PMI’s will be released overnight and the news should be market friendly.

Stocks should have all of the ammo they need to move higher in the next 24 hours. If the market fails to rally on good news, it might be a sign of profit taking.

My longer-term indicators have shifted from bullish to neutral and my shorter-term indicators flipped to bearish yesterday.

If the early gains evaporate this morning, I will day trade from the short side. I want to see us take out SPY $178.80. There might be some nervousness ahead of the FOMC minutes. I will cover before the release. If the reaction to the release is negative, I will reestablish short positions. If the reaction is bullish, I will stay on the sidelines.

This has been a fantastic year and I don’t want to give my profits back. The easy money has been made.

If we get a nice pullback, I will consider getting long. I don’t want to chase at an all-time high and I believe asset managers have a similar mindset.

The price action today will be choppy. If we don’t rally off of bullish news in the next 24 hours I expect to see a round of profit taking over the next week.
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