Far better to leave a party early than to stay too long.
We got some muted version on my January wish list. The president is 60% to be re-elected, according to intrade.com; Europe is disintegrating at a more or less predictable pace and there's word the Fed's tapped Steve Cohen's phone. It wasn't perfect but wishes are never perfectly fulfilled. Between the Nasdaq and the S&P 500, we've seen more than 10% gains.
In February the S&P 500 clambered over 1,350 and failed exactly as it was supposed to, without ever closing over 1,375. When stocks fail at resistance, exhibit weak breadth, go months without a pull-back of any size and suck latecomers in after a huge run, then a correction follows -- at least according to market theory. There's a conventional case to be made for shorting stocks but little reason to start buying.
Purple Crayon View
I've got my own views and I listen to what the Crayon tells me. Over the weekend I logged more crayon time than a Crayola factory and I couldn't find anything I wanted to buy. Ford (F), Microsoft (MSFT), metals, Intel (INTC), financials (XLF). Nothing I've been trading of late piqued my interest.
The risk side of the "Risk: Reward" equation was equally troubling. As I point out in the attached clip, a technical breakdown won't find support for a long time. S&P 1,350 is more likely to bring out sellers than it is buyers and the 50-day moving average isn't useful when the angle is this steep.
1,300 is the first level at which I could draw a nice, thick line, and that's 5% lower than it was when I drew the chart over the weekend. S&P 1,250, where the market was in late December, is great support save for the fact that it would take a 9% drop to get there.
I'm not bearish and I don't short stocks anymore. I came of trading age in the late 90s and I've literally never seen a rally that didn't turn into a selling opportunity. This is a rally and it's looking rather winded, so I'm taking money off the table.
The Macke Plan
I''m selling down positions across the board right now (note: the S&P is 1,360 as this is being written and the segment was taped well before the open). If we close above 1,375 I'll admit I was wrong and look for long plays. If or when the S&P gets to 1,300, I'll start rebuilding my book in earnest and on the long side.
Unless or until we get to those levels, I'm simply going to distract myself. Hello, March Madness!
Note: None of the above is advice. It's just my plan. If you care to share your own ideas, please comment in the section below or tweet me @Jeffmacke.