Not Topping Easily

Short term trades should be made not just on short term factors, but intermediate and long term factors which affect the probabilities in the short term.  

I came into 2019 expecting a quick New Year rally that would last about a week with a subsequent sharp pullback by now.  Instead, the market has been relentless going higher, breaking significant psychological resistance at SPX 2600, with pullbacks that have been less than 1% ever since AAPL came out with their earnings warning in the first week of the year.  

My expectations for January so far have been wrong.  With this kind of strong price action, I would have expected low put/call ratios and a broader acceptance of the rally and bullishness based on a potential US/China trade deal and a dovish Powell.  Instead, the put/call ratios have been relatively high, and there is a lot of chatter among traders about the market going too far, too fast, needing a pullback.  

Whenever you see this kind of relentless buying off a capitulative bottom that you had on Christmas Eve, it has to be respected.  Usually this kind of buying doesn't dissipate quickly, and the market tends to rally longer than most investors expect.  This interpretation of the market action is based on past experience and gut feel.  It feels like the world is underweight equities right now and now just starting to feel FOMO.  

Longer term, I think this rally will set up a great shorting opportunity.  The fundamentals are worsening and there are still too many bullish on the US economy.  But its not the time to short now.  Based on past instances you had this kind of price action, the rally tended to grind higher and higher.  It looks like SPX 2650 will be reached sometime later this month, and a run to SPX 2680 is probable before a top. I will be patient in putting on shorts.  This market is looking for bears' blood right now, so be careful shorting.