Hearty Bull Breakfast

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The strength of the past few sessions is persisting this morning, as bears suddenly find themselves scrambling to cover shorts. I have been adding more long exposure since Monday, given the number of charts that have shown impressive progress. The retail/consumer discretionary plays are among the best performing, and the airlines look to continue higher after Monday’s “up on bad news (hurricane)” phenomenon. It is also important to keep an eye on the transportation stocks, as they had been lagging for a long time. The bulls need them to act better, and they are doing just that today with relative strength. Note on the chart below that even as the broad market is fading at the time of this writing, the trannies remain at or near session highs.

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Direct Video Link Click Here

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In my post last evening, I discussed the different situations in which the market is overbought. At times, there is good, or bullish, overbought. Other times, an overbought market offers a high probability short setup. In the current market, the broad market flagged overbought on a variety of indicators yesterday. Today, there have been various points throughout the session where it looked like so many other sessions over the past few months, in which the bulls basically gave up the goose and let gains slip away in an instant.

However, as I write this in the final hour of trading, the bulls are putting up more of a fight in the face of an overbought market than I recall seeing in months. Hence, we are still looking for this concept of an overbought market fighting to STAY overbought as a positive sign for the bulls. Absent that, a nimble, cautious approach is still clearly on the table, front and center.

Slow day in the market. So, have a look at this data from AwesomeInfographics.com. Double-click for full view.

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The “easy” trade to short gold has been anything but, as the bullion hangs tough even after a steep run higher and recent volatility. Recall that gold has been part of the “fear trade” of late, along with safety seekers piling into Treasuries. As we have seen over the past few days, equities do not need gold and Treasuries to crash in order to rally, but sooner or later they are going to need the persistent underlying bid–especially under Treasuries–to at least soften. As you can see below, both gold and bonds are consolidating after their recent legs higher. To my eye, gold looks more vulnerable to a swift rollover than do Treasuries, but either way I will be watching to see what the opinion is of the only person who really matters: Mr. Market.

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