While every one is now going crazy over the rally in US Stocks, the start of which I pinpointed on this very blog on February 5th, 2010, the big money to be made on this rally is already off the table.
The markets have rallied steadily for about two months now with nary a correction. So with each passing day the odds of a 5% - 10% correction gets higher relative to the odds of a further 5% - 10% continuation in the rally. Should the markets decline by this amount a lot of growth issues are going to drop 25% - 50%+ in a few days.
So based on this reasoning here is the position I am trying to put my self in. I am currently looking to initiate position trade shorts in weak stocks, like the SVN trade I put on today and the RINO set up I am stalking which I will show in a later post, with about 40% - 60% of my buying power but continue making quick (1 - 3 day) swing trades in strong momentum names like my ABCD trade and the one I am stalking in NEP and potentially MSPD, CELM among others with the remainder of my buying power.
It is much harder anticipating tops but to cash in on them you have to be positioned early unlike market bottoms (in bull markets). Because where as rallies (sustained up trends without an 8% correction) tend to last 2 - 6 months in bull markets the corrections ( sharp 8% - 15% declines) are usually 1 - 3 months long usually with sharp 1 - 2 day rallies within them.
They are hard to cash in on but if you are prepared they can make you money and faster than in rallies. So my belief is that if the upside continues for another month or more I will continue to cash in on the upside. However, if the markets make a sharp turn down, an event growing more likely everyday, I will likely get stopped out of my swing longs for small losses or even profits but cash in big profits on my shorts.
So where as I was prepared to get 200% long in late February and March right now I prefer to be about 50/50 long/short. Then when the markets clearly start correcting I will look to get 200% short.