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We have some decent follow-through this morning to yesterdays huge gap higher. The end of the month in the stock market after a choppy or down month often involves a situation where bears back off the accelerator a bit, and give the bulls some room to bounce. There almost seems to be a certain mystique to this “window dressing” phenomenon, where fund managers try to make their portfolios as aesthetically pleasing as possible for clients. We still have plenty of sloppy charts out there, and a two-day bounce is insufficient to fix those issues.
Underneath the surface, we have a mixed bag. While the financials and Nasdaq are relatively weak, the transportation and energy stocks are strong. Bonds are coming in a bit, while the Euro is weaker than I would expect for a rally in equities. As I have noted previously, whenever the Nasdaq is lagging the major indices I grow skeptical of any rally. However, the end of month here can easily see this market drift higher for another day or two. My PPT screens are flashing more potential ideas than yesterday, which is a good sign.
Overall, I am still playing a highly selective, defensive style of hit-and-run trading. I need more than a day or two of end of month window dressing in order to upgrade to a more aggressive posture.
