After examining all the technical variables in the current cycle of the broad stock market, I have decided to cover (close out) all my short positions today. I have to say that many markets right now, especially equity markets, are often breaking normal technical parameters which, to say the least, makes trading them a challenge. I will discuss in more detail the pattern developing in the broad stock market in my next blog, but for now I will just say that we are likely seeing a technical "breakout" in equities, and the periodic corrective dips or downwaves that we would see in a normal market may be greatly diminished. One likely reason for this is the approaching holiday season. Investors often become irrationally optimistic in November and December, and equity markets often manifest a strong "Santa Claus" rally in these months. The recent announcement of more QE (quantitative easing) to stimulate Europe's weak economies and China's decision to lower its interest rates has certainly lifted the spirits of many on Wall Street, and this could drive a potentially very strong equity rally into the end of the year.
If the markets do start to drop into a corrective dip this week, we will look to the bottom of the correction as an opportunity to go long in the broad stock market. The next major reversal period for this market is the last week of this month so there could be a significant turning point at that time. For now, though, it looks like the potential for more strong rallying is making it too risky to hold our short positions any longer. Closing out all my short positions in the broad stock market today.