Why I think the rally over the last 3 days stinks
Peeee-Yeeeewwwwww. That's what I think.
The last couple of days we get some housing and job numbers that don't smell quite as bad, and the G20 is meeting and now everything is sunshine and lollipops? Come on.
I do think we will have a massive rally coming, but it won't be bourne out of the current overbought levels. There is too much euphoria, and really sustainable moves are not bourne out of euphoria.
From March 6, we rally >25%. That is a HUGE MOVE. And the rally hits its head on some massive resitsance (see the S&P daily chart below). This is competely understandable that it would need to pullback and consolidate and re-attack the resistance from a place of strength. But no, the market hears about jobs, housings, banks, etc. etc. all being not so bad and used this to power through. This news was cotton candy. And after the sugar rush, cotton candy does not provide lasting energy. The market needs to come back down, take nap, eat some pot roast, take a big dump (sorry, this is getting gross) and then feel refreshed to attack that resistance zone.
My position for my short-term / trading account:
I eventually want to go long (mostly in oil, but equities too). I think this is the beginning of a very large multi-months rally (see my case for this in my last post: Technical Investing Themes: Macro Trends...). But I will not buy overbought conditions in the middle of a heavy resistance zone.
I think the healthiest thing for the market to do is pull back to 770-750, consolidate, burn off overbought and build a strong technical base for re-attacking resistance.
I am currently 40% short / 60% cash. So of course I want the market to go down so I make money in the very short term. But I really want to be on the long side and be a part of the larger rally up. And that means getting a good entry, and right now this is far from a good entry.
Take all of that above for what it is worth (probably very little). This is just a humble trader / chartists opinion.
So here are technicals of the S&P on 2 timescales, Financials (XLF), Oil (USL).
You can see that there was no really pullback. Daily stochastics are overbought. and it is right in the middle of heavy resistance. This was also the first real breakthough of the 50day MA. Which is good. But based on how long that was resistance, I am very skeptical that it is "one-and-done". Acutally, if you look back 4-5 days ago, 50 day MA did fail as support (but it bounced off 20day EMA).
Based on the Elliot Wave Count there are two possible scenarios: Either we are still in the middle of a Corrective Wave 2 or we are at the beginning of Wave 3. That is not very comforting and a bit frustrating. But until we get some more price action, both are possibilities.
Financials (via XLF):
Hitting the same overhead resistance. Several open gaps on chart. HUGE run up. XLF went from 6 to 9.5 (up 58%) in 2 weeks. I am expecting a pullback.
Oil (via USL):
Oil hit hit its resistance around $50-$55/bbl ($WTIC). I like the chart, just looking for a more meaningful pullback (around 50 day MA or $45)