Flock investors will eventually become concerned over missing the big rally. When they start pouring money into the equities wanting to participate in the party, it will be time for us to leave the party that started at the end of October 2011. Within the next couple of months, much like the October 2007, this market will flush out all the bears and short-seller investors. The investors will start buying at the highs and our fingers will be on the sell button for our long positions in equities and corporate bonds. We may be a few weeks or months early. However, we don’t want to be leaving the stadium when everybody else is trying to leave.
TLT and the US long-dated treasuries will come down hard below their 200 day moving average. Bill Gross will get hurt for his poor call of the market again. When the dust settles and TLT comes down to earth once more, then we will become interested in buying TLT about 18% lower than the current value.
Trading software and programs that look for pattern recognition and the various moving averages are very limited in what they can offer an investor/trader in these markets. You will get whipsawed with these programs. Investor psychology is the rule of the game and anyone who can anticipate the herd’s next move shall prosper in the mid and long term.
As long as the U.S. dollar index is above 76 and Volatility Index (VIX) above 15, it would be safe to stay invested in risk assets. The final stages of this rally could end with a dramatic rise in the S&P and Dow in the near future.