S&P 500 Cash Index Has Its Highest Closing Price in History. Another Bull Leg Up From Here?

Not in my opinion, meaning I don't think the S&P will continue up to 1600 from here. I believe the markets are setting up for a correctional move to the downside. With the bullish, but choppy, action that has continued over the past couple of weeks, I see "smart" money taking profits and slowly entering short positions. That doesn't mean we won't see another small leg up from here. In fact, I am bullish in the very short-term here. This means I like buying dips. I also like taking profits fairly quickly on those long entries as nothing for me here is a swing trade. The only times I will consider swing trades is if I get a good entry at or near a new high and the market turns down in my favor. If I am in the money nicely and my entry is at what appears to be a potential inflection point, it is worth the risk to see if my profitable short turns into a VERY profitable short.

So, while I am bullish in the immediate-term, I am aware that a correction is looming. There have already been several periods of selling pressure where the ES moved down at least 20 points in quick fashion. Buyers have scooped up the excess supply in each case and lifted the ES back up above the original short-entry or potential inflection point. This behavior often happens in an over-extended market, frustrating aggressive shorts and giving more confidence to the dip-buying bulls. When complacency reaches its apex, this behavior will change with a swift move lower that cuts through prior support with reckless abandon. Such a move will prevent new shorts from entering and will cause complacent longs to hold their position as they expect a bounce back up. The continued move lower will squeeze the longs who thought they had a strong hand. Once these fearful longs finally exit, this will be the time to get long again. If a correction begins within the next week or two, I think the 1480-1500 price level might be the spot to get long again. From there we could see a 100 point gain to bring the S&P 500 up to test the 1600 level for the first time ever. But too early to talk about that now. The correction has not yet even begun.

I mentioned that I liked shorts above 1550 on the ES (M13 June Contract) in a previous post. I did actually hold a few of those shorts in the last two weeks only to see my profits disappear, but I was willing to take that risk given the uncertainties in the Eurozone financial markets. I felt the risk of seeing a reversal higher was worth taking, as there was potential to see a spectacular increase in selling pressure. That of course didn't happen as the Cyprus situation did not blow up and the "Bernanke Put" remained in play.

An example of price action that will give me confidence that a short-term top may indeed be in: First lets just remind ourselves that we are flirting with the all time high on the S&P 500 Cash Index. What I'd like to see is a bullish move that pierces higher than the 1576 top from 2007. That level is about 7 points higher than the close from Friday. I'll be surprised if that level isn't tested this week. If we do see a pierce of that level get rejected (meaning we see a reversal of the bullish breakthrough followed by a daily close back below the 2007 top), that should setup a nice opportunity to short the next uptick for at lest 20 points with potential for more.

We'll see what we get this week...