With the Dow and S&P 500 hitting new record highs this month, Mark Minervini author of the book Trade Like a Stock Market Wizard, says it's time for the bulls to take a step back and let stock market cool for a bit. "I'd be a little careful right here," he says in the attached clip, noting he's short.
His logic is the essence of trap most active investors have found themselves in for much of 2013. Good data raises the specter of the Fed's QE program ending but bad data is, well, bad. The net result is no one really has much of an idea what to make of numbers like the weak non-farm payrolls data out last week.
"Weak numbers longer term are going to be good for the market as long as it doesn't get too weak," Minervini says. "If unemployment really starts to rise then you go back to the type of situation we had going into 1982 where unemployment peaked, came down, then turned back up and we had another recession."
Right now it's almost impossible to say what the economy is doing given how flat the data is. It's possible, if not probable, that this economic situation is about as good as this recovery is going to get. That leaves trading off market sentiment, which is what Minervini is doing, guided by his risk model.
Minervini got short the tape when a sell signal was triggered on April 3rd. He's looking for a limited pullback of 4 - 7%, but the more the better in order to flush out some of the weak hands currently holding stocks. He's short from the April 3rd close with a stop a couple percent above those levels.