Three Caveats to the Upside Run in Stocks

By Todd Harrison  NOV 20, 2013 10:33 AM

See both sides as the year-end looms.

 


Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
 
We've reached the halfway point of this freaky week as global indices "back and fill" recent gains.  You know the drill; with mainstay indices up smartly this year -- the Dow Jones Industrial Average (INDEXDJX:.DJI) is up 22%, the S&P 500 (INDEXSP:.INX) is ahead 25%, and the Nasdaq (INDEXNASDAQ:.IXIC) is sporting a 30% return -- fund managers are "on edge" with 28 sessions left until the year-end letters are penned.

In recent sessions over on our real-time Buzz & Banter, we've paid homage to the technical landscape -- initial support resides at S&P 1775, with more meaningful supports down at S&P 1730 and NDX 3255 -- as we continue to respect the "long squeeze," with buyers higher and sellers lower into year-end. Perception is reality in the marketplace, and the masses have made a bet that current perception continues to manifest.

There are a few caveats as the bulls count their Benjamins. For one, the Investors Intelligence Advisor Sentiment Index finds 53.6% bulls and only 15.5% bears, which is near the prior peak of 55.2% bulls two weeks ago.  That dovetails into the VXO (INDEXCBOE:VXO) chart below, which shows that "fear" is a kitten's whisker away from 25-year support.  If the past is any prologue to the future, option hedges and/or stock replacements will prove to be smart strategies.
 

 
Another flag, for those who care of such things, is the price action in high-beta. Tesla (NASDAQ:TSLA), which was king of the world at $190, is suddenly the poster child of ambition gone awry, while other fliers, such as LinkedIn (NYSE:LNKD), Yelp (NYSE:YELP), Chipolte Mexican Grill (NYSE:CMG), Netflix (NASDAQ:NFLX) and Facebook (NASDAQ:FB) have become sudden battlegrounds.  These names remain a proxy for performance anxiety as they are “bang for the buck” vehicles for those trailing their benchmarks.

We'll get the FOMC minutes this afternoon at 2 p.m. EST, which will be dissected in kind.  Keep an eye out for any tangible shift in perception; while Ms. Yellen's Federal Reserve prides itself on wearing white feathers (read: remaining dovish), dissension in the ranks could rattle psychology in kind. 

Random Thoughts:
R.P.

Twitter: @todd_harrison

Position in SPY.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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