Despite the stage being set for a rally into the long holiday weekend, the bulls continue to stumble over their own feet. The month of May has by and large been dominated by a steady drip lower on the indices, as the S&P 500 is off roughly 9.2% from its April top. Logic dictates that a sharp, snapback oversold rally is right around the corner. However, the inability of that to materialize this week is somewhat disturbing, as it leaves the market vulnerable to another sharp leg lower out of the many bear flags on the indices.
That said, I am not looking to trap myself in a bevy of shorts here, given the high risk to either direction. The tricky part about playing for a major short squeeze higher next week, though, is that you are essentially buying out of hope over a long holiday weekend. You are hoping that the market reacts favorably to any news out of Europe or China, if anything comes out at all.
With this high risk environment, instead of forcing trades and a thesis to try to generate some action, a better approach is to enjoy your long weekend and come back next week refreshed and recuperated. Being slightly behind the curve on a potential oversold rally in a corrective market is small potatoes compared to the way in which we rode the prevailing uptrend during the first quarter of this year inside the 12631 Trading Service.