We continue to be cautiously bullish but generously hedged in our positions.  We are trend followers, yet the trend is not convincingly robust.  That is ok because there are strategies that we employ for every market condition.  We are currently selling premium which allows us to reduce the cost basis of our stock positions in addition to trading premium collection strategies that creates short term income.  It may appear that when the market is not decisively trending, then the markets are futile.  There is nothing further from the truth.  The fact of the matter is that markets will generally channel 70-75 percent of the time.  We love it when it trends because we can make money very quickly.  A trader that only recognizes and trades the trends will end up being dormant for large periods of time.

The INDU broke out of its sideways channel in mid to late December and smartly traded up from the 10,500 level to 10,700.  It appears that the index may want to go sideways again for awhile.  The slope of the bullish move has flattened.  If you investigate a one year chart of the INDU, you will see that the index has had a varied trajectory on this amazing move.  From the low on March 6th until the close on March 26^th there were only six bearish sessions and they were slight.  The move was parabolic.  The slope changed from that point until early May when we experienced the first of two small corrections.  The index then burst upward from July 13^th mimicking the move from March.  The INDU spent the month of July on a tear until early August when it began a series of stair step moves up until the recent consolidation in November and December.  The slope of the INDU since Mid November has been relatively flat.  Volume has been unremarkable and we are currently at an inflection point as pointed out in previous market analysis. 

We know that the market is going to do what it wants to do.  Prosperous traders realize and embrace that knowledge.  We apply strategies that optimize current market conditions, but we can develop a market bias in anticipation of what is likely to happen in the near term.  We pointed out in a recent post that institutional money appears to be pulling out of the market and into money market funds while retail investors are removing money from those funds and one could suspect that it is finding its way into the stock market.  Our feel is that the more sophisticated investor is anticipating a pullback in the markets.  It is anyone’s guess as to the magnitude and duration of such a move.  I can tell you that we are prepared to take advantage of that move when it occurs.  Best, Robin

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