In April we took half profits and let the rest ride for another leg up in the countertrend rally. Well, it may be time to reverse course on this market and look for some short positions again. The rally is a bit long in the tooth for a bear market phenomenon.
If the SPY can hold above $138.20, then a sharp decline may be averted, but if this drops further then watch out below with the next support level at $134. Risk management would dictate extreme caution in this environment and the poor technicals.
The market, while not as overbought as in October, has had a heady run with two-thirds of NYSE stocks trading above their 50-day moving average as shown in the following chart. This signifies a short term overbought condition.
The fed minutes were released today under much more hype than usual and the market sold off. I would look for a some limited strength tomorrow to sell into.
Another theme is the extremely overbought condition in oil over the short term, barrel prices having gone up over 7% this past week. A reasonable trade would be to buy DUG, the ultrashort oil and gas ETF, and look for a quick 5% on the retracement.
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