Part of the problem with a corrective, rangebound market is that you become conditioned, practically in a Pavlovian manner, to expect disappointment for breakouts and breakdowns alike. Instead of a true move, the market simply settles back in the other direction frustrating momentum traders along the way. It is for that reason I have opted for cash over all other positions as the cornerstone in my portfolio in recent months. Instead of the bears spilling drinks all over themselves, they seemed to be leaving them as traps to save their seats for when they returned to bang stocks lower.
However, the price action today is once again promising for bulls. A few charts I posted last evening, such as TCBI, are incredibly impressive with strong volume to support the move. And yet, trust issues remain about the sustainability of any move. The 50 day moving averages are now slightly rising on the major indices, but overall are smoothing out. The knee-jerk play might be to short at the top of this trading range we have been observing on the S&P 500, but when you look at how much bad news the market has shook off (AAPL, FB, ZNGA, etc), the bulls might finally push us up and out of the range this time.
Either way, methodically layering back in on the long side if the market continues to improve is my preferred strategy. Earlier this week, I got stopped out of a few longs inside 12631. Because I kept position sizes smaller than usual and maintained a very heavy cash position, though, the wounds were mild. The goal is to keep playing small until the market allows us to work off more than a hunch.
