The Anatomy Of This Rally - WTF is Going On?

This rally found a lot more mo all of a sudden. Just when everyone collectively braced for a 5-10% correction, which would not only be justified, but dare I say even hoped for? That's right, hoped for.

After all, those who were properly positioned in March to take advantage of this move and didn't stubbornly press the shorts, should all be pretty satisfied. Having said, I find myself wishing, almost masochistically, to give some back. Yes, I'd like the market to follow my plan - a 5-10% sell off, consolidate around a recent support, so those that missed this beautiful, scorching hot move, can put their money to work.

This holiday-shortened week, which also marked the start of the earnings period could have been a perfect excuse to take some money off the table, regroup and reset. But instead, we have now pushed above my 2nd set of targets. So what is going on? Clearly we are seeing a massive short squeeze, no question about it. The short trade has been such an easy trade for so long, it caused the same type of complacency that killed many longs last year. According to Bloomberg, most recent data shows that the short interest as a percentage of total shares outstanding jumped during the month of March, and now stands at 4.23% -- its highest level since last September. 'nough said.

I believe this rally was more than a bear rally, caused by a massive squeeze. This was a sentiment changing rally, at least temporarily. There are plenty of retail and institutional investors starting to feel anxious about being left out and missing the next leg of this bullish move. After all, think about it. Every bull market has always had a very strong initial move, followed by much longer consolidation phase, when returns are sub par. With $3-$4 trillion dollars in cash sitting on the sidelines this money is beginning to flow back into the market, adding fuel to this rally. According to TrimTabs, last week, ending April 8th, almost $12 billion flowed back into mutual funds, as compared to just under $3 billion a week before.

So what now? Is this a beginning of a new move? I am still hoping for consolidation opportunity which I am planning to buy aggressively. Will we see a 5%-10% move or will just continue to steam roll ahead? I don't know and no one else does either. So one needs to have a strategy to do take advantage of either one. Over the next few days I will outline my trading pan, including the specific themes, groups and stocks.

So stay tuned.