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The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.

F. Scott Fitzgerald

This week’s COT index number is +16.4% which suggests that the bull continues to run on Wall St.

Certainly we are entering on a seasonality basis, one of the best segments of the year for stocks. Add to that the emergence of Yellen as the lead choice for the Fed Chair, tepid economic growth, close to negative real rates, and you have most of the ingredients for a continued rally into February.

Technical

Looking first at the 5day chart, we see an uptrend, but price trading at the top of the range. Resistance is at $181.25. The 10day & 15day charts are unimportant this week. The 3day chart has resistance circa $182.25. I would suggest that the 5day chart will likely come into play. Therefore we can expect a pop in prices to open the week, and a decline from the resistance to support around the $179.oo area.

Valuation

Certainly the market valuation is getting a little rich. If you assume earnings growth remains lack-lustre, then valuations become increasingly rich. This has a number of market analysts calling for a decline. With no other options available, money managers continue to allocate cash to stocks. Hugh Hendry being the latest bear to succumb.

Market Neutral

With a market neutral strategy, any decline should it occur, can still provide significant profits to our positions and therefore the actual direction of the market is only of academic interest. We simply require a trend to develop in any given position to generate profits.

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