Top Line: The stock market continues to hold up even as bullish enthusiasm increases. This is a dangerous development and we expect a small correction coming up soon.
The jobs' report was indeed greeted by a higher opening on Friday which was sold hard and then the buyers came back in, at least in the blue chips (banks especially after the stress tests results were released). This is a classic head fake we talked about in our last post...however, the double head fake was a little unusual. The NASDAQ indexes didn't come back very far from their selloffs as compared to the runup in the blue chips...a red flag we mentioned last week.
The volatility indexes were weak again on Friday indicating reducing fear in the market which is a bearish development to add to the list of reasons for caution in the near term. As we have said, we do not think you should do anything with your long term positions but right now we would not advise buying anything, at least until prices came down and gave us a better opportunity.
In our trading account we have some GDX but that's all. The rest is in cash and is waiting for a good opportunity. All of our stocks in our portfolio had very good runs in the past couple of weeks and extremely good runs since the early March lows. We still do Not think this is a good enough reason to sell them.
We see the VXO, volatility index, coming down but only to the low 30's. This is not a reason to sell, more of a reason to Not buy. If the stock market now drops a little and the volatility indexes move up strongly, then we would be eager to add to our long positions. If not, we would be starting to look at the recent bullishness and need to move up our timetable of selling...that is a bridge to cross another day, after the stocks decline...if they decline.
Right now we think that stocks could come back down just in order to reduce the recent swelling of bullishness. People are starting to talk about the market in a positive way again and are probably getting confident to buy. These are red flags to us contrarians. But, while we expect a modest selloff here over the next few weeks, we do see higher highs coming in the next few months.