Tug-of-War Inside the Range

Since midday yesterday, we have seen a twenty point move higher in the S&P 500 Index. While we could easily be looking at end-of-month window dressing, the rally is putting some pressure on shorts and underinvested longs alike. Despite Monday morning push up to 1525, the big line in the sand for me in terms of playing strong defense here in my portfolio has been seeing the S&P fail to soundly recapture the 1514/1515 level on a closing basis. Recent highs are at 1530.

With the S&P at 1507 as I write this, the flattening-out 20-day moving average looms above at 1510 and could be provide resistance to this bounce. I also see that the transports are running hot, contrary to my thesis that rails like Canadian Pacific are ripe for a correction. With this in mind, I expect this afternoon to be telling as to the nature of the rally. End-of-month window dressing tends to subside a day or two before the month ends. And we are basically playing tug-of-war inside the 1485-1530 trading range until proven otherwise.