TheSlayer's Market Thoughts

SPY May 8 2013

We just look at what is happening, without value judgments. Market is grinding higher. We take that as the status quo until it changes. Since we are at the upper band, gains will be limited until we get a pullback - but as we saw earlier this year, those grinding days can stretch out over weeks.

It seems unnecessary to say this, but the obvious should be said once in a while. Protecting your gains is very, very important. This market is stretched to historic levels above the 20-day moving average (the blue line) - about 50 handles or something like that. These always have reversed in the past, and hard. Rest assured, the SPY will meet its 20-day moving average again.

Those of us who have been watching the market for years and years and ... well, for too many years remember days when everything looked great in a stretched market, then suddenly you see a sudden, inexplicable selling surge that in the recent past always stopped and reversed - but this one just doesn't. These often happen late in the trading day, during the final hour. They also can happen during the night session, when the Europeans get the ball rolling. They usually are not news-related, or the news is something that would have been shrugged off at other times and is just used as a pretext for the selling. The newscasters, after all, need a "reason." An example was the 1987 market break, which at the time was blamed on a minor interest-rate adjustment. We all saw the dangers of stops in the recent flash crash, but some sort of downside protection is vital.