The year-end positive bias continues to cause havoc among the shorts in the US, while overseas markets continue to get whacked by the reversal of the US dollar carry-trade (AKA lemming trade.) Volume remains very low.
Officially, the Dow industrials rose 0.5% on NYSE volume of 4.1 billion shares, while the NASDAQ advanced 0.7% on 1.8 billion. The leadership profile remains positive, with 558 stocks making new highs versus 100 making new lows.
The short term momentum oscillators have turned positive, non-confirming the bullish stance of the AlphaKing Trading Indicator for the NASDAQ (while the Russell 2000 AK Trading Indicator remains negative.) We have new trades below.
Everything in the world looks like it has entered a new bear phase, with the exception of the major US stock indexes. Short covering seems to be driving the latter, while a reversal of the US dollar carry trade continues to pummel emerging markets and all things related to commodities.
While we had predicted such a reversal in the US dollar, we expected US stock indexes to fall in-line with the reversal in commodities and currencies, and so far that has been dead wrong. While the current strength in the US could be - and probably is - the finishing touches on a short squeeze to enact the most pain before following the rest of the world down in bear mode, the AK Trading indicator for the Russell 2000 will turn positive later week unless some heavy selling materializes. Thus we are taking the defensive measure of selling ½ of our short positions. If we get a buy signal then we will sell the remaining short positions and adds some longs. If a hard reversal does indeed land to spoil the bull’s year-end sure-thing - as all factors of the lemming trade line up in the same direction - then we become more aggressive on the short side. Tricky times, for sure, and risk is now extreme for both the bulls and the bears.
401K investors should be invested in a money market fund.
Kevin Wilde, Chief Trading Strategist AlphaKing.com.
