As I said, I'm cautiously bullish and expecting a breakout of S&P through its 50 DMA to the upside, for which I was calling it a love kiss. It indeed did so yesterday just with one attempt, a rather impressive accomplishment. I expect this upward moment will continue in the weeks ahead as a major trend but it does not mean it is a straight line up. Actually I think the market is a bit moving up too fast too soon, a stretch too far out for now. In other words, short term, the market is quite overbought and due for a pullback. You may notice this general up movement is not joined by the Financial sector, which brings up the question if the market can keep its momentum without the participation of the financial sector. In general, it's important to see the financial sector as a tailwind to support a sustainable uptrend. We also see a weakness of the junk bonds today, which often leads the market in its next direction. More importantly I noticed something pretty amazing and negative that has not occurred in the entire past 12 months. I'm talking about the breakout to the downside through the lower BB band of the volatility index, VIX. In other words, this is quite an extreme move for VIX to the downside, which is an important contrarian indicator for the stocks. It is very likely the next major move for VIX will be to its upside, which usually means a weakness of the stock market. Historically such a setup could lead to a 1-2% of decline of the market. That's why I'm shorting the stock market as of now for the next few days. But this will be a short term trade and I don't expect a long lasting market decline but just a relief of the overbought condition.
This is still a very volatile and fluid market that can shock you suddenly if you are too much chasing either direction. Be cautious, folks!
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