TheSlayer's Market Thoughts

SPY May 10 2013

May 10 continued the "riding the upper band" trend we have been talking about recently.

I believe in watching the market and what it has done in the past to inform me what it might do in the future. Note the previous recent instances where the SPY clung to the upper band for weeks at a time. They lasted 4-6 weeks each before breaking down into fairly perfunctory corrections. If the old patterns hold true, we should be good with the current move until early or mid-June. Each move was roughly 100 points. Since we stared the current move roughly around 1600, we could see the vicinity of 1700 before this move ends.

Needless to say, this is not normal behavior for markets or equities or anything else. Something unusual is causing this weird market behavior. Ours is not to figure out precisely what, but to adapt to it.

Naturally, the move could end tomorrow. Or, we could rocket up to 2000. Anything is possible in the market. I am giving you a fairly conservative read, based on what has happened before as informing us what might happen next - which nobody actually knows, but will seem all-too-obvious to everyone in hindsight.

Calling tops is pointless, though always fun. Until conditions change, this rally will continue. Nothing has changed, and, if anything, recent rate reductions overseas has just increased the money inflows to the US markets. Think of it as a garden hose, continually squirting money into a bathtub, which only drains at a certain rate. The hose is squirting more than sellers can handle, and until that stops or lessens, we go up.

We also haven't seen any blow-off top or any other indication this run is anywhere near ending. You need to see advances with quick pullbacks, and regions that are not covered by renewed advances within a day or two. With these small daily gains we keep getting, or tiny pullbacks that don't even last a day, every previous gain is consolidated. That builds the foundation for further advances.

One more point: putting your hopes in QE ending as the axeman who is going to cut the head off this rally may be wishful thinking. I know that runs counter to "common sense," but we are talking market sense, not common sense. Even if Bernanke stops priming the pump, the Japanese are engaged in their own ruthless campaign to reflate their economy. The Europeans are likely to follow suit - witness their own recent rate reduction. (They have legal obstacles to that which could be overcome.) My point is, this is a global phenomenon. People overseas see the US returns and are hopping on board to avoid losing ground, That, believe it or not, may be the true driving catalyst of this market, not Bernanke. He just lit the match, now the world financial world is ablaze, for better or worse. Ben is throwing a party, and you be there or be square. Who ultimately pays the tab, well, I don't know, and nobody else does, either.

If this all sounds insanely Bullish, so be it. One must confront reality. At the very least, until QE ends, this rally has every possibility and even likelihood of continuing. Even then, it might not completely stall out.