Now, the probability is growing that a real "bubble-like" move has begun, in which we could very well see the S&P 500 rise +25% in a very short while towards the 2000 level.
If we look at the S&P 500 futures, there are no traders with any profits if they are short. The long side has the profits, and they are the winning side, with this circumstance likely to remain in place for quite some time.
What would cause such a move as the world economy is clearly in a weak mode? "The Great Rotation" is the answer.
Many, including us – have looked for this circumstance to take place, although we looked for this to develop towards the end of next year. But last week, a bullish weekly key reversal higher materialized in the 10-year note yield, and this of course suggests higher prices ahead.
However, with high yields comes an increasing probability that the "bullish head & shoulders" bottom pattern materializes, which would push yields even more sharply higher ... and push more money into stocks.
So, in order for us to play catch-up with the market, we'll take long positions in the energy and materials markets first and foremost.
We had talked about a major bearish copper futures pattern, but last week – a bullish weekly key reversal materialized. Hence, we look for higher copper and energy price as the crude oil chart never broke down as expected.
We'll take positions in stocks with good intermediate-term patterns, with well-defined risk-reward patterns: Peabody Energy (BTU), Newfield Exploration (NFX), National Oilwell-Varco (NOV) and Cliffs Natural Resources (CLF).
We are also taking a short bond market position (long yields) via the Lehman 20+year bond fund 2x short ETF (TBT). This will be our starter positions; and we'll look to add more in the week and weeks ahead.
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