Be Patient in Front of the Month End Buying Window

Traders have been nervous over the past couple of days as the bond market has been falling. Today’s scans revealed a plethora of short set ups and few stocks worth looking at on the long side. Looking at the market in a narrow time frame, forgetting to filter out market noise and swinging with the crowd here it would be very easy to jump from the bullish camp to the bearish camp. Interestingly enough however, when panning back to a weekly view, stocks that are setting up short are oversold and showing bullish divergences. Likewise, it is our view that it would be trader suicide to short the market a day before the month end buying spree kicks in. In other words, we believe we are seeing the making of a bear trap; a situation where shorts are enticed in right before bulls fire back. The bond market is bottoming and as mentioned numerous times this week, we expect buyers to come back in either today or Friday. There is a strong risk for bears that they will be caught on the wrong side of the tape and will get squeezed like they did a week ago Wednesday. This is a market that is rewarding the patient right now. Good set ups on the long side will come as the traps are sprung. We may or may not see lower prices today, but we believe that by Friday or Monday the bears will be screaming uncle! As always, we will wait for confirmation before we buy in to this theory. Today we will wait for better set ups.