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Live, From New York ...

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It is time for another guest appearance on The Wacko News Network

Anchor: Welcome back to the show Tony.

Tony: Thanks - great to be back.

Anchor: Tony, we have had many guests on the show over the past couple weeks and it is getting tough to define what consensus is. The bulls note the price strength and breadth, while the bears note the overbought conditions and proximity of resistance. Where do you stand?

Tony: Great question. My take is that everyone is watching the macro events and focusing on the major market indices instead of watching for the totally unexpected -- choppiness in the market and some violent rotation.

Anchor: Well what do you expect? The U.S. Dollar Index has been creamed, the 10-year Note yield is at its low, and stocks have ignored both. Shouldn't equities follow suit and move toward the lower end of the range given the high correlation over recent months?

The Dollar Index is making new lows

Bond yields are at the lower end of range.

Tony: The major equity indices very well may follow suit, but there are two very important factors that I would like to point out. First, the tight correlation is not the historical norm. Everyone (including myself) has talked about it, and the relationship is certainly not a given. Second, bond yields are at a point that have led to prior market rallies, and what happens if the dollar experiences a significant snapback rally that draws foreign investors into the U.S. financial markets?

Lower Bond yields have led to rallies before.

Anchor: So you are bullish here at the upper end of the trading range?

Tony: Well, since I know you have done your homework on what I have written recently (sarcasm), I view my job as identifying the next sustainable move in the market and the sectors that comprise it. Anything can happen near-term, but my view has been that a sustainable move through resistance is unlikely. Also, the rotation theme should become more important than simply buying or shorting the SPY, Dow Diamonds (DIA:Amex) or QQQ Exchange Traded Funds.

The reason that I bring up the above potentially positive points is that good research focuses on data points that can change a thesis vs. data-mining to support a predetermined view. All too often, we select an opinion, then ego makes us ignore alternative views.

Anchor: So in other words, you wouldn't chase stocks here at the upper end of the range due to the proximity of resistance and the extreme intermediate-term overbought condition. But if the market does get through the upper end of the range, a non-sustainable spike could occur.

Tony: Wow -- that was so well put. Give me a second because I want to write it down so I can remember it. It is also important to remember that one's risk profile and time-frame is key to determining course of action in this environment. Someone with a longer-term time frame would be nuts to sell this market because being at the upper end of the range doesn't mean it can't punch through.

As I said, I wouldn't be a buyer at current prices, given the fundamental or technical backdrop. But rather than simply selling and removing any possibility of further upside, I would use tight stop-loss prices on uncomfortable long positions in case the market doesn't break through and trades back to the lower end of the range. That way you have an identifiable exit strategy, while maintaining potential.

Anchor: What would you then say to your trading accounts?

Tony: Over the last couple of weeks, I have talked about the upper end of the range and a variety of signals that suggest a significant move (up or down) may be very near. The indicators and odds favor a pullback here, so I would be out of the way. But I would be poised to act on the potential for a market spike higher on a breakout. Prices are THAT close to a big move in either direction from a trading standpoint.

Anchor: Unfortunately Tony we are out of time. Enjoy your day and have a great weekend.

Tony: Thanks and let me take this opportunity to thank all the viewers and their continued support. It is an honor to have this platform.

No positions in stocks mentioned.
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