Let the Dust Settle

After an impressive move of nearly 100 points on the S&P 500 index, the market has overall drifted slightly lower the past two sessions. The bull case is that we consolidate the recent gains before powering higher for another sharp move. Indeed, we have seen some improvements on the technical front in terms of the price action in many individual stocks. However, there still remains risk that the correction which began in April has not yet fully run its course.

With a still-declining 50 day moving average on the indices, though, I am not embracing the rally whole-heartedly just yet. I am inclined to think that a long/short strategy can work here. In addition, note the high volume breakdowns in former momentum favorites such as BBBY RHT and UA today. In order for us to be on the brink of a sustained uptrend, we most likely need to see broad-based leadership, rather than just a narrow pocket of stocks acting well.

In the interim, I am letting the dust settle from this recent rally. My “contrarian” bearish gold trade is working so far, and I  am looking to see if the gold bears can finally gain the momentum to the downside there. Other than that, my cash level is still high and I am open-minded to the notion that the market is likely setting up a major trap here–It’s just a question of who is getting hustled and who is going home with the prom queen.