We’ve been adding to our bullish swing trades for two months. Do not add! This is a time to start scaling out of your positions.

PRE-OPEN MARKET COMMENTS THURSDAY – As expected, the market is floating higher on light volume. The economic backdrop is solid and the Fed is dovish. We are in a period of seasonal strength and there aren’t any sellers. Even small buy orders can push the market higher. So why are we taking profits?

First of all, you don’t have to bail on all of your longer-term swing positions. I would suggest exiting a third of them. Know that the hour is late. The candle bodies are small and the volume is light. This is NOT a high quality rally. It is typical of what we see into year end. Our greatest threat is a gap up to a new all-time high and the $617 area is about as high as I think we will get this year. We could get that gap up tomorrow after the jobs report and if it is sizeable, I would take gains on at least another third of your positions.

Gaps up to new all-time highs are often faded. That will spark profit taking and that reversal will gain momentum as the day unfolds. If the market goes right into the gap during the first 30 minutes of trading on long red candles, I would exit the remaining longs. If the market holds the gap up, you can hold on to the remaining one third, but I would be looking to exit the remainder on any healthy move higher.

“Pete, you sound bearish.” No, I am playing the odds. I see limited upside and considerable downside. This is a good time to lock in healthy profits. The same fundamentals have been driving the market higher all year, but there have been many bumps in the road. Asset Managers are not going to chase a new all-time high… that’s why we have dips. The programs drive the market down and they flush bullish speculators out. Once support has been confirmed, Asset Managers will nibble. We can’t get bearish until we have a swift deep drop and a wimpy bounce that falls well short of the all-time high. That could take weeks to form or it could take months. We don’t know when it’s going to happen, we only know that this is a good time to take gains and to go to cash.

“Why don’t I just hedge?” Because that complicates your trading and hedges don’t always work the way their supposed to. Cash gives us flexibility and complete clarity.

From my perspective, it is time to raise cash and it’s time to go into “hand-to-hand combat” (day trading). It will be tough sledding because the intraday ranges will be compressed and the volume will be light. Given how bullish I’ve been, this might sound odd, but the best day trading opportunity I see right now would come off of a big gap up on the open Friday followed by two long red candles into the gap. That would be a bearish gap reversal and I would trade that tomorrow on the notion that it could result in a bearish trend day.

The action today is going to be fairly light ahead of a major economic release. Initial claims were 225K. That is a decent number (slight uptick). I believe the jobs report tomorrow will be good. I don’t know that it will hit the 200K that is expected, but anything north of 150K should be well-received.

If the intraday range is tight, spend most of the day taking gains on your bullish swing trades.

Support is at $605 and resistance is at $615.