For nigh on three years now we've been expounding upon the theme that we were essentially emulating the 1950's and the same period of time 100 years ago, wherein the markets stumbled at the onset of the 20th Century in a similar way as they repeated at the onset of this Century. Then from late 2003 onward, various US and Global market indices began doing what they did in times past setting new all time highs on a fairly routine basis such that it became so commonplace that little mention was made of this other than technicians such as ourselves, knew full well, that when the broader indices such as the S&P 400 MidCap, IJS S&P 600 Index, Russell 2000, Banking Indices among others and especially when the Dow Jones Transportation and Composite Indices sooner or later join in as well, we know it's only a matter of time before the Granddaddy of them all, the Dow Jones Industrial Average itself, would eventually set new all time records...

And, as we highlighted in our 'Back to the Future' piece a while back: The likelihood of making continual new highs on a more routine basis, was not only probable, it has happened with somewhat of a vengeance, surprising many by its strength and increasing broadness of wider participation, at least up until Thursday last week. It is kind of remarkable how the Dow has become the cheerleader of the rest of the pack and has also influenced Mexico's incredible recovery and surge to new all time records of stunning dimensions to 23,000 plus, in a virulent post election buying binge. We happen to think that Mexico is looking a little stretched right here and so it may have run its course for now, but it has been some kind of ride, as has the Dow's performance in recent weeks: Even India's BSE managed to claw its way to new highs.

Considering extreme levels of pessimism that was prevalent back in July and early August, when we first made our 'New Bull Market in the Making' call, this bull sure took a lot of investors by surprise and its performance has been almost legendary by many historical measures, however, this week could be a defining week for many markets as could the end of October that could lead to a trend change in the making over the next few days or weeks. While MODAR began to increase its market exposure as an extremely aggressive buyer of stocks in late July and early August into September and October, over the past few weeks, our exposure to the long side has been cut back markedly and we have actually been increasing our short exposure to stocks over recent days, with impressive enough results. When a widely held stock like Caterpillar CAT, which MODAR shorted Friday, gets cut down the way it did, it is often akin to a warning shot across the bows of the market and is somewhat reminiscent of our earlier short positions in Exxon, Chevron, BP and Chesapeake before Oil started falling...

Last week, increasing Global tensions re-ignited Gold and Silver prices, reminding us of all the reasons to be adding to metals on every dip.

Trade Well

From the Desk of Savant