The equity markets have gone virtually nowhere over the last 5 trading days and volume has been tapering off more and more each day.
If the market had continued to work its way higher with this decrease in volume then we would have a very bearish pre-cursor to some downside action, but being as we have been in a consolidation mode, it is nothing more than a neutral reading as the market continues to digest the most recent gains.
There continues to be a very large supply of put option buyers out there and this bodes well for a continuation of the rally we are currently in. Quite possibly we could see a breakout of sorts to the upside once this consolidation phase is over. Today was one of the narrowest ranges in a very long time and this is a sure indication that there is about to be a substantial move in the offing. However, it is difficult at this juncture to determine if this move will be upwards or downwards. If you held a gun to my head I would have to answer that the next move should be sharply higher and here are a few reasons why.
1. The quiet, low volume atmosphere is indicative of a consolidation phase and typically the market will continue in the direction it was going once the consolidation is over.
2. The 3 day cycle never really gave us much to put our teeth into on this last sell we had and were stopped out of, which indicates some underlying strength.
3. There remains a fairly large audience towards the short side of the market, especially in the option pits. This continues to warrant higher stock prices.
4. The old adage "Never Short A Quiet Market" has been proven to me over and over again and I simply cannot ignore this axiom. While most of the so called conventional wisdom on wall street is pure Bunk, this particular one has stood the test of time.
I remain 60% allocated towards equities pending more evidence of the health of this rally and until proven otherwise this rally is nothing more than a bear market rally at best. However as I have stated before, it still has potential to move back into the 1500's on the S&P 500.
Lets listen to the market and make our next move from there.
I will be updating the 3 cycle either tonight or early tomorrow morning.
We were stopped out of out last Put option position for a loss.
Currently we are right on the line for entering call options and this could come as early
as Wednesday Morning so stay tuned.