Needless to say, the major market indexes are fast approaching our upside targets. My thoughts are the sooner the better. Since I am not very comfortable with putting my feet on the edge of a cliff, I have built a hefty cash position, and will continue to build that position on days like today.
The faster the indexes can reach their euphoric tops, the sooner we can exit the cyclical bull, finish the cyclical bear, and look forward to a new and robust bull market. I would rather see the market have several big days and reach our targets sooner, than to back and fill and take forever to reach its ultimate climax.
Our upside target on the S&P has been 1350, with the potential to reach 1400 in a blow-off. As for the Dow, 11,750 has been our initial upside target, with a potential to reach 12,000 before exhausting itself. Given what has happened to Microsoft and Intel lately, the NASDAQ will really have to hustle to reach our projected 2400-2450 resistance level.
Upside blow-offs usually occur when investors feel they are missing the train, and the remaining short-sellers throw in the towel. Once this occurs, and the faster the indexes get to their technical peaks, the market will revert to the final stages of the bear market which may begin as early as late summer or fall, and finish its cycle sometime in 2007.
Since bear markets like to inflict as much pain as possible, it will wait as long as possible to suck in as many investors as it can before pulling the plug.
Today's rally was more of the same. Leading off the day was the "Jobs Report" which showed an increase of 138,000 new jobs. This number fell short of the 200,000 jobs that the consensus expecting. Traders took this report as evidence that the fed was going to pause sooner rather than later.
Taking a line from Bill Clinton's "it depends what your definition of is, is", we need to understand what the feds definition of "pause" is. Will the word 菟ause 僧ean stop for good? Or, will it mean what the textbook definition says 典o cease or suspend an action temporarily."
I think the final outcome of the real definition of "pause" will come when the fed finally admits what it sees on the inflation front as it pertains to commodities, energy, real estate, and a host of other price irritations.
Keep an eye on gold (probably due for a correct), and interest rates.
For now, I like my cash position, and I think I'll really like it 6 months from now.
