A Fishy Smell

Sorry all. Been on the road. First the 4th of July holidays and than working on some business related issues. We are in a very predictable rally but where we go from here is very unpredictable. This is why I hate this market and have hated it for months. This is why to a large degree bottom up investing has been dead for a couple of years. Everything moves together either straight up or straight down. After essentially 10 days down in a row now we are up 5 days in a row. Not little moves but massive moves up and down. I postulated about a break back above 1040 and we are getting really close to where we need to stop if this isn't something bigger. It is just a stupid game of timing but if your on the short side you have to at least look at that stupid game.

Since I am bearish and think the inevitable move at some point will be back below 900 I will focus on the bearish viewpoint and my immediate concerns in the short term. Top among them is copper. Copper has very quietly gone back above it 50 day moving average. Why. I have no idea. It is a great harbinger for risk appetite and economic strength. At the same time the Baltic Day Index is down a record 30 days in a row. This typically means less need for shipping. There is a disconnect there. Watching copper not make new lows when the markets broke 1040 was one thing that gave me pause thinking there would be a bounce but seeing copper continue to move up makes me wonder if there isn't something more going on.

Secondly is the dollar and the euro. The correlation broke down some but I speculated the Euro would bounce and it continues to bounce and it seems like there could be more to come. Can the U.S. markets really plummet if the dollar is falling as that means more risk appetite? Let me be clear, I don't think the Euro has made its final low. I also think there are going to be some major European problems coming yet again in the relatively near future. But I could easily see the Euro rallying for several more weeks or a few more months.

This leads me of course to the European Bank Stress Test. Can the markets really be that stupid two times in a row? The American Bank Stress Test was a farce but was it enough to shift sentiment. This combined with the fact that banks were raising equity help them get away it. Can this one do the same thing or is it buy the rumor sell the news type of thing? That is extremely important to figure out. That is in two weeks so maybe the Euro rallies through than before rolling over?

Than you have the way this rally looks. It seems much stronger than the rally a month or so ago from 1040. We get so dang oversold and what you want to see is sideways choppy action with spurts and starts as you grind higher. That works off the oversold condition. This stupid rally has been straight up in a very short amount of time. It doesn't do nearly as much to work off oversold conditions and get overbought.

Finally and most importantly is the sentiment. Gotten extremely bearish. Stocks just can't go down when everyone is bearish. That means everyone has sold who has wanted to sell. Now this week hopefully helped some but has it helped enough? I don't know. Doug Kass was out at the beginning of this week saying we have seen the low for the year. While I think he is wrong he was zeroing in on how bearish everyone had gotten.

If we do have a much bigger rally ahead of us the target has to be around that 1150 are. So do we see 1150 or 950 first. If you asked me two weeks ago I would have guessed on a rally but strong probability for 950. The way this rally is unfolding I still think 950 but the probability break down in my mind is more like 60% not the previous 80 or 90% like I was thinking. So at least for me it is hard to bet either direction.

For the bearish perspective one has to hope this is just a relief rally before news hits. Buy the rumor sell the news. Earnings start next week and in two weeks is the release of the European stress test. Both in reality mean very little but it is always the reaction.

The biggest things going for the bears (and it is a big deal) is that once again on the moves up volume is becoming less and less. Todays volume was nonexistent. I mean the street was dead. 1.2 ish million ES contracts. Maybe 800 million on the NYSE big board. TALK ABOUT DEAD!!

Anyway, I don't really have a clue right now. All I know is that from a bears perspecitive this rally smells fishy in it could be a trap. Of course if your wrong and than right you just have short term pain but if your using options or leverage being to wrong on timing can be very painful.