Big disconnect in the market

I believe in fundamentals. But fundamentals can lag price action for an extended period of time.

This is exactly the current situation. I said this regarding gold in my previous post.

Most of the fundamental economic indicators are weak and market is on a historic move without a 5% correction for the longest period of time.

• April PPI is: -0.7%.
• May Empire State: -1.43%
• March Factory orders: -4%
• April NFIB index of small business Optimism a weak +2.5 to 92.1

Where are the effects of sequestration? What about the fiscal cliff? It is completely forgotten now. Is'nt there supposed to be tax increase with Obama's administration? Obviously, the tremendous amount of liquidity pumped into the market is having its effect.

Market ignore the economic data and trade like a teenager – buy and buy. People are being Abenomics is the real answer to all our problems. Kyle Bass is completely wrong for the time being.

Short players are being squeezed as seen in Tesla, Groupon, Pandora, Netflix and many speculative stocks. Telsla’s rise is historic.

People hate it but are buying it. Feel like the dot.com bubble all over again!

To quote Bill Gross recently: 

Never have investors reached so high in price for so low a return. Never have investors stooped so low for so much risk.

–Bill Gross, PIMCO, 14 May 2013

Old rules of buying the dips are suspended. There are no dips! There is also no sell in May and go away. Another rule says “don’t chase the market”. But if you do not chase, you are left out.

I have been chasing stock cautiously through naked puts and the stock keep running away from me.

In a normal market, I should have made a lot more money. In a way, I am still underinvested. Making money from naked puts does not help me to run with the market. Also, my core positions in precious metal is dragging my portfolio down.

Although this market makes me nervous but I am participating.

However, in this business, it is important to keep your eyes on the exit door.

Once it happens it can be really ugly. But for the time being, I expect the market to melt up

What are my strategies now?

I expect the market to melt up. I will remain bullish as long as the trend tells me so. Buy those that is showing strength and sell those showing weaknesses.

I will continue to use naked puts to get into positions with a clear exit if I am wrong.

Market will return the mean over time but this excess could extend for a while. Exponential rising or falling market WILL go further than you think although it is not permanent. The greater the excess in one direction will lead to an opposite excess in the other direction. A good trader will make more money than a “buy and Hold” investor.

Whenever there is a conflict between price action and fundamental, follow the price action. Never trade against the trend. I must keep strict discipline to my weekly regression trend channels. Never let confirmation bias influence my trade.  In many cases we are breaking off on a stage 2 rally of market cycle. Enjoy the ride while you can but remember to say good bye when it is time.

It is my belief when it breaks, it can be very severe but it may be a while before this occurs. It will come like a black swan where nobody expects.