We are at a very tricky juncture here. Sentiment remains sky high and the VIX remains near extreme lows - both of which indicate too much complacency. The dollar pulled back sharply off of resistance yesterday as we indicated it was likely to do, driving stock prices higher. Yet, the Dow remains firmly under resistance and virtually nothing out there achieved new recovery highs on yesterday's rally, meaning that all major indices and most stocks failed to break above Monday's highs.
None of this is to say that prices can't continue higher here frustrating our short positions.
However, if prices do break higher, the risks of a reversal sometime next week are extremely high so if there is upside left before a more serious correction kicks in, it is likely to be muted. The real money, in our opinion, is going to be made on the short side over the next few weeks. The tricky part is going to be getting the timing right.Bottom line, we will just have to wait and see if yesterday's bounce was just a one day phenomenon that will quickly reverse. Given the way the dollar typically behaves when it is correcting, probabilities are reasonably high we will see yesterday's rally faded today. This is not a prediction, but rather an assessment of probabilities based on past market behavior so we will just have to dig in today and see what develops before we act further.