11/3/2014 6:12:17 AM

Good morning Traders,

When I teach stock trading, I often talk about how investors feel when they're in a profitable position versus a losing position. Well, when the markets are at new highs, it's the same thing - everyone's profitable, and generally the feeling is pretty good.

And that's where we are today. As this 5 year bull plays itself out, indices are making and breaking new highs. So let's look at seasonality.

Things are definitely extended to the upside, as you would expect for such a sharp move higher. One measure of our barometer (efficiency) is at a cautious peak.

Bonds are testing support, and in all likelihood will continue lower as rates should rise. But what should happen doesn't always...

While not at an extreme, it's pretty close. This doesn't mean the market will immediately sell off, but it does mean the easy money has been made and it does make the market vulnerable...

Our cautionary note to clients recently is to watch out for the economy here. This indicator suggests weakness that's usually reflected in the stock market. Oil is cheap for a reason...

Speaking of oil, while it's a potential buy here mid term, it's also close to a short term sell. Futures have been holding on to lows since overnight. We're considering a long position in our option service. But not yet.

Gold is selling off reflecting the recent move in the dollar and stabilization in the US Economy. It's finally breaking below the one year consolidation. Option writers support this move, but it is getting crowded.

The strength in the dollar is causing a lot of this transition in the commodity markets (and some multinational stocks). The strength has been remarkable.

What to expect for the dollar? Following a retest of the highs, I'd expect it to continue sideways.

And back to the Qs and a look at our timer, this strong short term peak usually means that we'll have to wait for the mid term line to turn lower before we get some downward price traction. 10 days above the 9-day moving average, suggests a strong move (obviously) and note that this state can exist for 3-times this period. The gap up on Friday will be a little more worrisome if we get weakness to start the week.

So we remain Long the Qs, leaning towards neutral strategies (i.e. issuing covered calls soon) and if sentiment gets overly bullish, we'll issue some PUT recommendations. In our gold, oil and natural gas services, we're in Gold PUTS that are doing extremely well, but close this month.

The Oil puts have expired for significant gains as well, so we're patiently awaiting our next signal. I say patiently because it always amazes me when people subscribe to my service, and cancel it for lack of activity after a few weeks.

You need to be patient for the market to set up appropriately and given our last puts were up several hundred percent, I like to take some time to make the next read.

And Natural Gas broke down after a consolidation, and is bouncing to test that break down. We'll watch how the pro traders are positioning and consider a position.

We'll look closer at cycles and our model forecasts to narrow down potential turn dates ahead of the actual turn. So stay tuned...

Regards,