Ideal set up for a trap

Market participants are in holiday mood. As we approach the end of the year, the market is meandering about without much direction.Low volume and lack on interest characterises this action.

The prices are not going much higher. The bullish case has a lot going for it right now in the form of some positive seasonality and strong momentum. The bears have all but given up on the idea that we will see any significant pullback in the next six trading days, they are scared of the squeeze. When the market is in such complacent stage, all it requires to trigger a move in either direction is few programs. An extremely high level of complacency is always dangerous.Be wary of trap.

When everyone is convinced nothing is going to happen till January, chances of something dramatic happening are very high. Anyone who has been around the market for any length of time knows that it can be very, very dangerous when everyone (the bulls and bears) is convinced of the same thing.

You must have a plan in place and be prepared for a possible pull-back. Conditions are ripe for a complacency trap to be sprung on the market.When everyone expects nothing to happen, a programme buy or sell can catch so many off guard.

There has been a steady deterioration in the leadership group. Slowly, one by one stocks which were the first to burst out when this tally started are deteriorating. The stocks making 50% or more move in a month indicator is at 5 stocks level currently after being in 15-20 range for entire duration of rally. Stocks making 100% move or more has deteriorated steadily in last one week. The stock making 25% move in 65 days has started deteriorating rapidly. Number of stocks from high EPS earnings breaking out has deteriorated, many which are breaking out are not moving forward, are stalling or reversing on failed breakout. Some of these and many other things are shadowed by action in few momentum names. Many of those names are highly speculative and are not the one to lead rallies higher.

Top 30 stocks on momentum scan:

ACOR,Acorda Therapeutics Inc (Google  Yahoo  Earnings BW  Chart) 
AOB,American Oriental Bioengineering Inc (Google  Yahoo  Earnings BW  Chart) 
AXR,Amrep Corp (Google  Yahoo  Earnings BW  Chart) 
AZL,Arizona Land Income Corp (Google  Yahoo  Earnings BW  Chart) 
BRLC,Syntax-Brillian Corp (Google  Yahoo  Earnings BW  Chart) 
CHTR,Charter Communications Inc (Google  Yahoo  Earnings BW  Chart) 
CLWT,Euro Tech Holdings Ltd (Google  Yahoo  Earnings BW  Chart) 
CRVL,Corvel Corp (Google  Yahoo  Earnings BW  Chart) 
ENPT,En Pointe Technologies (Google  Yahoo  Earnings BW  Chart) 
FTGX,FiberNet Telecom Group Inc (Google  Yahoo  Earnings BW  Chart) 
GIII,G-III Apparel Group Ltd (Google  Yahoo  Earnings BW  Chart) 
GOAM,Goamerica Inc (Google  Yahoo  Earnings BW  Chart) 
GROW,U.S. Global Invest Inc A (Google  Yahoo  Earnings BW  Chart) 
GVP,Gse Systems Inc (Google  Yahoo  Earnings BW  Chart) 
HGO,Houston American Energy Corp (Google  Yahoo  Earnings BW  Chart) 
HTI,Halozyme Therapeutics Inc (Google  Yahoo  Earnings BW  Chart) 
IAAC,Internat Asset Holdg Cp (Google  Yahoo  Earnings BW  Chart) 
JST,Jinpan Internat Ltd (Google  Yahoo  Earnings BW  Chart) 
MAMA,Mamma.com Inc (Google  Yahoo  Earnings BW  Chart) 
ONSM,Onstream Media (Google  Yahoo  Earnings BW  Chart) 
PCCC,Pc Connection Inc (Google  Yahoo  Earnings BW  Chart) 
PGLA,Progen Industries Ltd (Google  Yahoo  Earnings BW  Chart) 
PTT,Vcg Holding Copr (Google  Yahoo  Earnings BW  Chart) 
RAND,Rand Capital Cp (Google  Yahoo  Earnings BW  Chart) 
SIGA,Siga Pharmaceuticals Inc (Google  Yahoo  Earnings BW  Chart) 
SOFO,Sonic Foundry Inc (Google  Yahoo  Earnings BW  Chart) 
SQNM,Sequenom Inc (Google  Yahoo  Earnings BW  Chart) 
STEC,Simple Technology Inc (Google  Yahoo  Earnings BW  Chart) 
TGEN,Targeted Genetics Cp (Google  Yahoo  Earnings BW  Chart) 
UAHC,United American Healthcare Cor (Google  Yahoo  Earnings BW  Chart) 


What can go higher, yes there are stocks and groups which can go higher. I am keeping an eye on around 100 stocks like that. Expanding the momentum universe to 5% can give you much better read on which are likely to lead in next phase. The top 2% are slowly deteriorating one by one but they will be replaced in relative ranking by others. It does not take much to get fully invested on long side, if the market does start rallying. But I have serious doubt about it at this stage.