The Bulls are Over-Extended and the Bears are MIA

Dear SlingShot Trader Subscriber,

As Wall Street continues to push the stock market higher and higher – the Dow Jones Industrial Average is above 13,000 and the S&P 500 is above 1,400 – the question on everyone’s mind is…how high can this market really go, especially without an increase in volume?

Here’s the conundrum. While the bulls on Wall Street seem to have over-extended themselves, the bears are missing in action.

Over-Extended Bulls

To get an idea of how over-extended the bulls are right now, let’s take a look at the NYSE Bullish-Percent Index.

A bullish-percent index (BPI) is a percentage-based point-and-figure chart that looks at all of the stocks that are listed on a given exchange and plots the number of them that are currently showing “buy” signals on their point-and-figure charts versus those that are showing “sell” signals. So a reading of “70″ on a BPI indicates that 70% of the stocks listed are showing “buy” signals while only 30 percent are showing “sell” signals.

As you can see on the NYSE BPI below, 76.74% of the stocks listed on the NYSE are showing “buy” signals on their point-and-figure charts – which is definitely an elevated level.

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NYSE Bullish-Percent Index (courtesy of StockCharts.com)

So where do we go from here?

Let’s take a look at what happened the last three times we were up at this level.

A. September 2009 – When the NYSE BPI got over-extended for the first time after the market bottomed out in March 2009, the S&P 500 continued to climb without any significant pullbacks until May 2010 – eight months later.

B. April 2010 – The second time the NYSE BPI got over-extended finally signaled the turnaround we were to see in May 2010 – as mentioned in point “A.” This tells us the market can get over-extended and stay relatively over-extended for a long period of time if the bulls are trading with conviction.

C. December 2010 – The third time the NYSE BPI got over-extended, the S&P 500 continued to climb without any significant pullbacks until May 2011 – five months later.

D. Today – We see the NYSE BPI at over-extended levels, but that doesn’t mean we’re in for an immediate pullback – especially since the bears are MIA.

MIA Bears

Where have all of the bears gone? Who knows, but they’re not trading stocks right now. Just take a look at the U.S. Market Short Interest chart below.

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Short Interest Total U.S. Market (courtesy of Bloomberg.com)

Short interest in the U.S. stock market has dropped below levels we were seeing in late-2009 when the market was in a similarly impressive rally to the one we are seeing today.

You’ve probably heard the saying, “Don’t try to catch a falling knife” when the market is in a downtrend. Well, it looks like the bears out there are just as hesitant to step in front of a speeding bullish train.

The Bottom Line for Next Week

This bullish market is going to continue climbing unless we start to get some worse-than-expected political or economic news. Tensions with Iran could escalate, U.S. economic data could unravel or some other surprise event could shock the market. But barring any of these events, watch for the bullish train to keep on chuggin’.

This Week’s Events

Here are some of the news events that we may trade in the next week or so. We’ll be discussing some of these in tonight’s webinar.

Mar. 22 – ConAgra (CAG) Earnings Announcement
Mar. 22 – Silver Wheaton (SLW) Earnings Announcement
Mar. 22 – Weekly Jobless Claims
Mar. 22 – Leading Indicators
Mar. 23 – New Home Sales
Mar. 26 – Pending Home Sales
Mar. 27 – S&P Case-Shiller Home Price Index
Mar. 27 – Consumer Confidence
Mar. 28 – Durable Goods Orders

TRADE REVIEW

When it’s time to open or close a trade, we’ll send you alerts via e-mail. You also can sign up to receive text messages regarding our trades. For more info about our SlingShot Trader portfolio, you can read trade alerts here and view our portfolios here. You can also see more trade-specific details by clicking on the trade links below.

Open Positions

These are the SlingShot Trader positions that are currently open and active.

Sliver Wheaton (SLW)On March 21, we recommended you to “buy to open” the April 32 Puts for $1.15 or less. SLW releases earnings tomorrow after the market closes. You can get into this trade any time before then.

ConAgra Foods (CAG)On March 19, we recommended you to “buy to open” the April 26 Calls for $0.75 or less. CAG releases earnings tomorrow before the market opens. You can get into this trade any time before then.

iShares 20+ Treasury Fund (TLT)On March 14, we recommended you to “buy to open” the April 111 Puts for $2.00 or less. We still like this trade if you can enter below $2.00.

Closed Positions

These are the SlingShot Trader positions we closed during the past week of trading.

Bank of America (BAC)On March 15, we recommended you “sell to close” the April 9 Calls. We closed the position for $0.58 for a gain of 163.64%.

Webinar Preview: Join Us Tonight at 6 p.m. ET

Every Wednesday at 6 p.m. ET, we host our live webinar, in which we’ll review this weekly newsletter, discuss coming events in more detail and walk through our Top Trades. We also encourage you to submit your questions live during the session. We want to do everything we can to help you become a successful options trader, which is why you’ll have live access to us for an hour every week.

And if you have any questions or comments you would like to send us in advance of the live session — or anytime during the week — you can write to us at johnandwade@slingshot-trader.com.

If you can’t attend the session live, you can watch the archived version on our website in the “Live Weekly” section. It’ll typically be posted within about two hours of the end of the live session.

Sincerely,

 

John Jagerson and Wade Hansen
Editors
SlingShot Trader