Making Strides

More and more breakout plays are starting to work this morning, as the market has failed to see any type of violent downside reversal that we had seen so many times over the past several months after prior rallies. The S&P 500 has followed-through on Friday’s move by convincingly breaching that multi-month trading range of 1120-1220. According to quite a few indicators, we are overbought. However, an important point to consider is that in the early-stages of a bonafide new uptrend becoming, and staying, overbought is actually bullish. It is still a bit too early for my taste to declare that we are at the beginning of a major uptrend, in part because of the overhead supply that I suspect is not too far above. That said, I see no reason to fight this tape by shorting it yet.

My focus is on looking for heavily shorted stocks that are technically sound, in order to exploit the vast amount of bears who are caught leaning the wrong way with no reprieve over the past few weeks. However, I am in no rush to go all-in here. The rally has been sharp and impressive, but I am still sticking to what I do best, which is staying nimble and skittish until I find the situation where being very aggressive is appropriate. Looking at the chart of the energy sector, you can see what I am talking about–A sharp rally, indeed, but directly into overhead supply and a very steep angle of ascent. While I am not shorting energy here, I am reluctant to buy it today.

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