These days bearish investors are excited at market opening and nervous at closing. The current market trend is to open lower, drop immediately and then an hour later to start clawing its way back to either closing flat or even higher than its previous day close. This bullish phenomenon is not very comforting to bearish traders.
QQQ (Nasdaq 100 index) has already made an upside breakout to reach a decade high and SPY (S&P 500) is almost 2 percent away from its 2011 high. Once we get a blast upward, the bears will panic and they will go to cover their short positions. That can only intensify the surge in the market. Last Friday, when we got the strong employment report, the rush to cover shorts ensured that we did not get the intraday drops of January, where the market opened high but closed lower. We are now in a different ball game.
As the bears start moving into bullish territory we will start preparing to exit the rally. It could be the end of February or March. But it is not yet. VIX, the volatility index, is getting lower. The flock investors have started moving some funds into equities by selling out of treasuries (TLT). Corporate insiders have started some selling but not at an alarming rate. The US dollar has some more room to go down. We have not reached the market top yet but all the important signals indicate that we are getting close.
The following article is worth reading in order to understand how late in the game the media starts changing course. This article was posted on January 30th, when the market had already rallied more than 20%.
(MarketWatch) “It may be a good time to buy, but not to sell.”