An Eerie Feeling

The more I look at this market, the more that nothing feels right about it. Many signs tell me the market should retreat. However...

The S&P 500:
- has broken out to new highs above the 50% fibonacci retracement from the 2007 highs.
- has broken above the down trend line dating back to the highs of 2007
- has broken above the range that it had been trading in for the last month and half of 2009
- has not broken down below the up trend line of the current rally dating back to March of last year.

SPY Daily Chart Showing Bullish Signs

All these things suggest the market is going higher. I don't know how I can fight this. I will have to trust the charts more than my own instinct. BUT, like I said in my last post, I am still positioning myself to the Short Side.

My method is that I have a swing trade account open which is Short the S&P. In a separate account, I am playing the market bullish. This acts as a hedge against my short position. I have been buying the dips and can easily close my long positions in the event that we see a serious turn to the downside.

Why I Won't Completely Join the Side of the Bulls?
- Risk and Reward. At the current market levels, there is much greater risk of a rapid move to the downside than there is of a rapid move to the upside.
- the rally has seen relatively low volume suggesting that there is not full participation.
- the breakouts have been relatively small and the market has been choppy.
- there was a recent decoupling of stocks from the US dollar. While the dollar has reversed to the upside, stocks have also continued to the upside. The old relationship could resume, sending stocks quickly down.
- while it looks like we have broken above several resistance levels, I want to confirm that this is not a bull trap. This will not take long to confirm as there is not very much more resistance to stop the S&P from climbing past $1200 or $120 on the SPY.
- all market sectors do not seem to be moving in unison. Technology has been lagging the past 2 days. Financials had been declining until the last couple of days. The retail sector has been lagging. Point being, this market is very suspect in the fact that we never see all sectors participating in unison.

I believe confirmation will come soon. $115.40 on the SPY is the magic number for me. If we close above that, I will have to cover my Shorts. This could happen today, though I hope not...