Let's step back a little bit and see what happened in today's market. Were we really up over 2% in the SPX today? You gotta be kidding me.
Ok, ok. It's not much of a surprise if you look at the macro picture. A few obvious catalyst today, but is it enough to keep us going?
- Japan - thanks, Japan. The more and more countries attempting to devalue their currency, including the U.S., the more securities AND gold become more attractive. The sell off in the dollar is out of control, in my opinion, but you gotta ride the wave and hop off the surf board before it crashes into the rocky shores.
- POMO - We experienced a very strong POMO sell today. It was enough to help today's early run and give the big players plenty of cash to take on some risk trades. And to that point, tomorrow we'll see some more POMO activity before what looks like a break for a week, or so.
- ISM Non-Manufacturing Index - Good report today from the ISM Services report helped the momo and kept buyers in throughout the day. Nice uptick in chart below.
- Technicals- There was clearly a short squeeze today as the SPX pushed strongly through 1150. The last week has actually started to show some heavy bearish divergence on the SPX chart. This brought in a good number of shorts and also kept a lot of folks on the sidelines. When 1150 was taken out, the closet bulls came out to buy the move and the bears covered their shorts.
All of these catalysts were well aligned today and pumped up just about every sector and commodity. It feels like there is no end in site to this run. Well, maybe there isn't. But, we have to trade smart. One up day, strong though it may have been, does not mean life is good. A few thoughts to consider when measuring your risk this week.
- After tomorrow's POMO, there will likely be less FED involvement through Friday.
- Earnings season hasn't really kicked off yet. There have been a few reports, but the bulk of the economic picture will come over the next few weeks. In other words, this rally is not based on fundamentals - it's based on chasing a move, the dollar's demise, a few economic numbers, and Japan(today). I don't plan to over expose myself to the long side until the earnings picture is clearer. Translation - more intraday scalps and less swings.
- Lots of data to come this week that could move the markets in either direction: The ADP National Employment Report, Initial Jobless Claims, Non-Farm Payrolls, and Unemployment Rate.
My feeling is that we'll continue to see some strength tomorrow, but keep an eye on the dollar. If it shows some strength, you will likely see some profit taking in the equities market. It's hard to know what will happen later in the week. It's clear that the market is fickle and will move on a whim. Technically, 1150 is now support and we'll have to be cognizant of this level during our intraday trades. For now, I'm not willing to take too many trades to bed and am currently over 80% cash, but am loving the intraday activity.
Stay nimble.
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Disclosure: Long GLBL, FCX, SONC